<PAGE>
As filed with the Securities and Exchange Commission on April 12, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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US SEARCH CORP.COM
(Exact name of Registrant as specified in its charter)
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Delaware 7375 95-4504143
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
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9107 Wilshire Boulevard
Suite 700
Beverly Hills, CA 90210
(310) 553-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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C. Nicholas Keating, Jr.
Chief Executive Officer
US SEARCH Corp.com
9107 Wilshire Boulevard
Suite 700
Beverly Hills, CA 90210
(310) 553-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Alan C. Mendelson, Esq. Larry W. Sonsini, Esq.
Cooley Godward llp Daniel R. Mitz, Esq.
Five Palo Alto Square Mark L. Reinstra, Esq.
3000 El Camino Real Wilson Sonsini Goodrich & Rosati pc
Palo Alto, CA 94306-2155 650 Page Mill Road
(650) 843-5000 Palo Alto, CA 94306
(650) 493-9300
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Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum Amount of
Aggregate Registration
Title of Securities to be Registered Offering Price(1) Fee(1)
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<S> <C> <C>
Common Stock $.001 par value................... $80,000,000 $22,240
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. These +
+securities may not be sold nor may offers to buy be accepted prior to the +
+time this prospectus is delivered in final form. This prospectus is not an +
+offer to sell these securities nor does it or we seek offers to buy these +
+securities in any jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 12, 1999
PROSPECTUS
Shares
US SEARCH CORP.COM LOGO
Common Stock
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This is an initial public offering of shares of common stock of US SEARCH
Corp.com. US SEARCH is offering shares of common stock. Our principal
stockholder, The Kushner-Locke Company, is offering shares of common
stock. We will not receive any of the proceeds from the sale of common stock by
Kushner-Locke. After the offering, Kushner-Locke will own approximately % of
our outstanding common stock.
There is currently no public market for our common stock. We anticipate that
the initial public offering price will be between $ and $ per share.
We have filed an application for listing on the Nasdaq National Market under
the symbol "SRCH".
See "Risk Factors" beginning on page 5 to read about certain risks that you
should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities
regulators has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds to US SEARCH Corp.com...................................... $ $
Proceeds to Kushner-Locke........................................... $ $
</TABLE>
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The underwriters may, under certain circumstances, purchase up to an additional
shares of common stock from us at the initial public offering price less
the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
-----------
Bear, Stearns & Co. Inc. BancBoston Robertson Stephens
Wit Capital Corporation
as e-Manager
The date of this prospectus is , 1999.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain of the information contained elsewhere in
this prospectus. This summary is not complete and does not contain all of the
information that you should consider before investing in the common stock. You
should read the entire prospectus carefully, including the Risk Factors, and
the financial statements and related notes.
US SEARCH Corp.com
US SEARCH provides clients with a single, comprehensive access point to a
broad range of public record information about individuals. Our services can be
accessed from anywhere and at any time through our Web site, 1800USSEARCH.com,
or by calling our toll free telephone number, 1-800 U.S. SEARCH. We currently
offer services such as individual locator, individual profile report, anti-
fraud identification verification, nationwide court record, adoption and
reunion search services. We recently began offering individual locator and
individual profile report services to corporate and professional clients. In
the fourth quarter of 1999, we intend to introduce pre-employment background
screening and to establish US SEARCH as a leading source of this service to
corporations, professional organizations and government agencies.
Using our services is quick, easy and inexpensive. All of our searches are
highly automated and performed by electronically accessing multiple,
geographically-dispersed public record databases. We aggregate the requested
information and deliver the search results in a user-friendly format. A growing
number of searches can be conducted directly by clients via our Web site. For
example, our Internet-based "Instant Searches" are processed online, in a
completely automated fashion, and the results are often delivered in as little
as a few seconds or minutes. For more complex searches, we also provide value-
added search services, including assisted searches, both online and through our
toll free telephone number. Search results can be delivered through real-time
display on our Web site, by e-mail, telephone, facsimile or mail. We
continually evaluate our database and other information sources to ensure that
we make available the most timely, accurate and comprehensive public record
information to our clients.
Our 1-800 U.S. SEARCH brand has already gained significant market acceptance
as representing a high-quality and cost-effective individual public record
information and search service. In the first quarter of 1999, we had
approximately 4.6 million unique visits to our Web site and received over
220,000 telephone inquiries. According to Nielsen/Net Ratings, 2.83% of all
people who logged onto the Internet in February 1999 visited our Web site, up
from 1.99% in January 1999. We believe the accessible and timely nature of our
services differentiates us from other public record information sources and
increases and facilitates demand for our services.
We intend to further strengthen our brand position through increased
advertising, emphasis on our Web site and promotion of additional public record
information and search services under the US SEARCH brand. We maintain
marketing alliances with InfoSpace.com and The Lycos Network. These marketing
alliances and other marketing agreements provide access to our Web site
through: InfoSpace.com, AOL.com, Netcenter.com, Lycos.com, Snap.com,
WhoWhere.com, Tripod.com, Angelfire.com, MailCity.com, Go Network/Infoseek.com,
HotBot.com and Excite.com. Our television advertising, which features our
services, appears regularly on CNBC, MSNBC, CNN, CNN Headline News, Jeopardy,
Wheel of Fortune, Leeza, The Ricki Lake Show, Hollywood Squares, Judge Judy,
The Dating Game, Newlywed Game and Judge Joe Brown.
1
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Our objective is to be the leading provider of public record information and
search services for individual, corporate and professional clients. To
accomplish this, we plan to:
. strengthen our US SEARCH brand through increased advertising and
Internet marketing alliances;
. leverage the efficiencies of the Internet by increasing the number and
type of searches that can be completed on our Web site;
. expand the range of our service offerings to provide our clients with a
comprehensive suite of services; and
. develop corporate and professional services to provide valuable decision
support to employers.
We believe our continued success and growth prospects will benefit from
exceptional growth in usage of the Internet and electronic commerce. IDC
estimates the number of Internet users worldwide will grow from an estimated
100 million at the end of 1998 to an estimated 319 million in 2002. IDC also
estimates that the total value of goods and services purchased over the
Internet worldwide will grow from approximately $32 billion in 1998 to
approximately $425 billion per year by the end of 2002, business to consumer
commerce on the Internet will increase from approximately $5 billion in 1997 to
approximately $95 billion in 2002, and business to business commerce on the
Internet will grow from approximately $7 billion in 1997 to approximately $331
billion in 2007.
THE OFFERING
<TABLE>
<C> <S>
Common stock offered by US SEARCH.................. shares
Common stock offered by Kushner-Locke.............. shares
Common stock to be outstanding after the offering.. shares
Use of proceeds.................................... For advertising and
promotion of our services
and US SEARCH brand,
development of
infrastructure and new
services, repayment of
related party debt,
capital expenditures and
other working capital and
general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............. SRCH
</TABLE>
The total number of shares of common stock to be outstanding after the
offering shown above does not include (1) up to shares issuable pursuant
to the underwriters' over-allotment option, (2) 1,610 shares reserved for
issuance upon the exercise of stock options outstanding as of March 31, 1999
under our 1998 Stock Incentive Plan and our 1999 Non-Employee Directors' Stock
Option Plan, and (3) 1,608 shares available for future grant or issuances under
our 1998 Stock Incentive Plan and our 1999 Non-Employee Directors' Stock Option
Plan.
Except as otherwise indicated, all information in this prospectus assumes:
. the underwriters' over-allotment option is not exercised;
. our reincorporation in Delaware prior to the closing of this offering;
. a for one stock split of our common stock prior to the closing of
this offering;
. exercise of warrants to purchase 1,500 shares of common stock; and
. conversion of outstanding convertible subordinated notes into 2,750
shares of common stock.
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements of US SEARCH and related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
From
November 3- Years Ended December 31,
December 31, --------------------------------
1994 1995 1996 1997 1998
------------ ------ ------- ------ -------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues................... $ 21 $ 899 $ 5,690 $2,971 $ 9,245
Cost of services............... 23 595 3,363 1,501 3,769
------ ------ ------- ------ -------
Gross profit (loss)............ (2) 304 2,327 1,470 5,476
------ ------ ------- ------ -------
Operating expenses:
Advertising and marketing.... -- 626 2,559 655 7,007
General and administrative... 7 188 1,007 1,165 3,882
Charge for warrants issued to
majority stockholder(1)..... -- -- -- -- 1,190
------ ------ ------- ------ -------
Total operating expenses....... 7 814 3,566 1,820 12,079
------ ------ ------- ------ -------
Loss from operations........... (9) (510) (1,239) (350) (6,603)
Interest expense............... -- (15) (64) (110) (197)
Other (expense) income, net.... -- 132 (60) 63 13
------ ------ ------- ------ -------
Loss before income taxes....... (9) (393) (1,363) (397) (6,787)
Provision for income taxes..... -- 1 1 2 1
------ ------ ------- ------ -------
Net loss....................... $ (9) $ (394) $(1,364) $ (399) $(6,788)
====== ====== ======= ====== =======
Basic and diluted net loss per
share(2)...................... $ $ $ $ $
Weighted-average shares
outstanding used in per-share
calculation(2)................
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1998
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Pro Forma As
Actual Adjusted(3)
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<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................. $ 99 $
Working capital (deficiency)............................... (7,761)
Total assets............................................... 575
Total debt................................................. 4,001
Total stockholders' equity (deficit)....................... (7,749)
</TABLE>
Notes to this summary financial information appear on the next page.
3
<PAGE>
Notes to Summary Financial Information:
(1) For a description of this charge, see Note 13 of the notes to financial
statements.
(2) For a description of the method that we used to compute our basic and
diluted net loss per share and weighted average shares outstanding, see
Note 3 of the notes to financial statements.
(3) The Pro Forma As Adjusted data in the Balance Sheet Data gives effect to:
. the issuance of 2,750 shares of common stock upon the
conversion of $5.5 million in convertible subordinated
notes;
. the issuance of 1,500 shares of common stock upon the
exercise of outstanding warrants issued in September 1998
and January 1999 and receipt of related proceeds of
approximately $2.8 million on assumed full exercise of
January 1999 warrants; and
. the sale of shares of common stock offered by us at an
assumed initial public offering price of $ per share and
the receipt of the estimated net proceeds from the
offering.
The Pro Forma As Adjusted data does not include (a) non-recurring charges of
approximately $4.3 million to be recorded in the first half of 1999,
approximately $3.4 million of which relates to the beneficial conversion
feature of convertible subordinated notes issued to Kushner-Locke in January
1999, and approximately $947,000 of which relates to warrants issued to
Kushner-Locke in January 1999; and (b) a $550,000 origination fee due to
Kushner-Locke relating to the convertible subordinated notes.
4
<PAGE>
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the following risk factors in addition to those factors included in
the remainder of this prospectus before purchasing the common stock. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Many factors, including those described below, may cause actual
results to differ materially from our anticipated results.
We have a limited operating history upon which you can evaluate our prospects
We were incorporated in November 1994 and began offering public record
information and search services on our Web site in early 1996. We have a very
limited operating history, which makes it difficult to evaluate our business
and prospects. You should not rely on our past performance as an indication of
future performance. Your evaluation must be made in light of the risks and
difficulties frequently encountered by companies in an early stage of
development, particularly companies offering services in new and rapidly
evolving markets such as the Internet. These risks include:
. inability to successfully expand and improve our
infrastructure, including expanding our technology
infrastructure, adding or relocating to new facilities and
hiring and training new personnel;
. market acceptance of our services, including our corporate and
professional services;
. availability and high cost of advertising necessary for us to
expand our US SEARCH brand and generate sales;
. costs and difficulties in maintaining relationships with
Internet search engines, portals and high traffic Web sites;
. costs and delays in introducing new services including services
to corporate and professional clients;
. rapidly changing demands of our clients and our inability to
maintain client confidence in the accuracy, completeness and
value of our services;
. new and evolving trends, including the trend toward low-cost
and free access to public information; and
. pricing pressure and competitive service offerings.
It is difficult to predict the size and future growth rate, if any, of our
market. The market for our existing and new services may not develop or become
economically sustainable. If individual or corporate clients are unwilling to
pay for the aggregation of public record information, or if the market for our
services fails to develop or develops more slowly than anticipated, our
business and prospects will be materially adversely affected.
We may never achieve profitability
We incurred significant net losses of approximately $1.4 million in 1996,
$399,000 in 1997 and $6.8 million in 1998. On December 31, 1998, we had an
accumulated deficit of approximately $9.0 million. We expect to incur
significant additional losses and continued negative cash flow from operations
in 1999 and beyond and we may never become profitable.
Historically, a substantial part of our revenues has come from sales of our
services on our toll free telephone number, 1-800 U.S. SEARCH. We believe we
must successfully expand the nature and number of our services offered on the
Internet. We may not be able to generate a greater proportion of Internet
traffic and transactions. In addition, we have a limited amount of experience
offering services on the Internet. This limited experience may make it
difficult for us to accurately forecast client behavior, and recognize or
respond to emerging trends, changing preferences or competitive factors.
Failure to recognize or respond to these factors may result in a material
adverse effect on our business and prospects.
5
<PAGE>
Our revenues and operating results are subject to significant fluctuations that
may impact our stock price
Our revenues and operating results have fluctuated in the past, and may
significantly fluctuate in the future due to a variety of factors many of which
are outside of our control. These factors include:
. service interruptions and costs relating to expansion of our
networking infrastructure and facilities;
. fluctuations in the cost of television, radio, print and
Internet-based advertising;
. inability to maintain or develop relationships with various key
Internet companies and high traffic Web sites;
. delays and costs associated with unsuccessful service
introductions;
. increased turnover of our sales or support personnel due to a
relocation of our facilities or for other reasons;
. inability to attract and retain qualified personnel in a timely
and effective manner;
. technical difficulties and system and service interruptions,
including Internet and Web site downtimes;
. loss of one or more of our database providers;
. productivity of advertisements and sales personnel;
. anticipating and responding to the introduction of new or
enhanced services by our competitors; and
. declines in perceived value, price or demand for our services.
Any one or all of these factors could materially adversely affect our
business and results of operations. Based on these factors, we may fail to meet
the expectations of the public market in any given period.
Our business depends largely on our ability to attract new clients through
television and Internet-based advertising as well as other marketing efforts. A
substantial portion of our operating expenses are based on advertising
commitments on television programming and Internet portals, directories and Web
sites. We have non-cancelable fixed term contracts with many of our advertising
partners. As a result, a substantial portion of our expenses in any given
period are fixed and based in part, on expectations of future revenue and
advertising and sales productivity. We may be unable to generate enough
revenues following this advertising to offset the related cost. We may also be
unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall.
From time to time, demand for our services following television or Internet-
based advertising has exceeded our infrastructure and operational capacity and
we were unable to effectively respond to client demand for our services. If
these events occur again, we may lose clients and our reputation may be
damaged. In addition, perceptions regarding our future prospects could change
quickly. In either of these cases, the market price of our common stock could
be adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
If we are unable to expand and improve our infrastructure, facilities, and
operational capacity, we will be unable to grow and our business and financial
condition will suffer
The recent growth of our business has placed significant strain on our
communication and networking infrastructure and existing facility. This growth
has also increased the demands on our management team and technical, sales and
operational resources. We anticipate that continued growth will require us to
implement and improve our operational, financial and management information
systems.
In addition, we will need to invest in new and expanded computer,
telecommunication and information systems that better address our existing
capacity constraints. We may also need to relocate or acquire new facilities
that better address our operational and personnel needs. As we offer new
services and pursue
6
<PAGE>
corporate and professional markets, we will also need to increase our executive
and sales and support personnel. Our business and results of operations will be
adversely affected if we are unable to expand and continually improve our
infrastructure.
We may also experience higher costs and possible disruption of our business
as we hire and train new qualified personnel to replace those lost in the
ordinary course of our business or lost in an expansion or relocation of our
facility. Last year, we experienced a turnover rate which is comparable to that
experienced by other telemarketing businesses. Our success also depends to a
significant extent on the ability of our senior management to effectively
manage the anticipated growth of our operations and personnel. We may not be
able to manage our recent or any future expansions successfully, and any
failure to do so could have a material adverse effect on our business and
results of operations. See "Management--Executive Officers, Directors and Key
Employees."
Service interruptions may damage our reputation and may decrease our ability to
attract clients
We depend on the satisfactory performance, reliability and availability of
our Web site and our network infrastructure to attract Internet users and
generate sales. Our reputation and brand would be harmed and the value of our
services to clients would be reduced if we experience system interruptions or
other technical difficulties that result in disruption or unavailability of the
services offered on our Web site or slower response times. We have experienced
system interruptions in the past and we believe that these interruptions may
occur again in the future. We may not be able to expand our network
infrastructure or operational capacity to meet increased demand, which could
cause delays in our response time, loss of clients and damaged reputation. In
addition, we have experienced unanticipated system disruptions and slower
response times as we add additional software and hardware to accommodate any
increased traffic on our Web site. We may also experience delays in our
response times to client telephone calls during periods of high calling volume.
Our business and results of operations could be materially adversely affected
if we are unable to address capacity constraints in response to increased
demand. Also, despite the implementation of network security measures, our
servers may be vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of
data or the inability to accept and fulfill client orders.
We depend on our marketing arrangements and alliances with Internet companies
An important element of our current business strategy is to maintain
relationships with an increasing number of Internet-based portals, directories
and Web sites for advertising and to direct and attract traffic to our Web
site. Advertising on the Internet is new and evolving, and the effectiveness of
Internet-based advertising is not clear. Under our marketing and advertising
agreements, Internet companies display our text, banner or logo, or
"impressions" on their Web sites. These impressions may not lead to sales of
our services, and our payment is required whether or not the advertising was
effective. We currently anticipate that payments to Internet companies will
constitute a significant component of our total operating expenses in future
periods. We may not be able to maintain our existing relationships with
Internet companies. We may also be unable to enter into new relationships with
Internet companies, which generate adequate returns to offset related costs.
Due to our limited operating experience, we are unable to accurately forecast
the revenues these agreements will generate. Any termination of existing
agreements or failure to enter into new agreements with Internet companies on
terms favorable to us, could have a material adverse effect on our business and
results of operations.
Our advertising arrangement with one Internet company may provide us access
to another company's Web site. For example, our arrangement with Infospace
provides us with advertising on certain parts of the AOL and Netcenter Web
sites which are serviced by Infospace, even though we do not have agreements
with AOL or Netcenter. Our continued advertising on these Web sites depends on
the continued relationship between Infospace and these two companies. If this
relationship is terminated for any reason and if we are either unable to enter
into an agreement with these companies or unable to enter into an agreement
with another company that has an agreement providing access to AOL and/or
Netcenter, our advertising will no longer appear on their Web sites. This could
significantly reduce our advertising reach and lower the number of potential
clients visiting our Web site which could in turn materially adversely affect
our business and results of operations.
7
<PAGE>
Our business and financial performance may suffer if we are unsuccessful in
expanding our service offerings
Our strategy includes expanding our existing services and offering new
services. In particular, we intend to offer a greater number of new searches
available through our Web site and to develop and promote service offerings to
address the needs of corporate and professional clients. We have very limited
experience in providing services to corporate and professional clients.
Attracting these clients will require us to hire new sales and marketing
personnel and expend resources to develop and promote these new services. We
may fail in our efforts to provide these new services in a timely and cost-
effective manner.
Implementing these measures will substantially increase our operating
expenses and will place considerable strain on our existing management and
operational resources. We will incur a substantial portion of these expenses
before we achieve any meaningful revenues or market acceptance of new services.
We also expect our cost of services to increase as we offer new services to
corporate and professional clients. Our new services may not achieve a
sustainable level of market acceptance or ever become profitable. If a new
service is unsuccessful, our reputation and brand position may be damaged and
this may make it more difficult to sell our existing services. A significant
amount of our future growth depends on our ability to offer these new services.
If we fail to offer new services in a timely and cost-effective manner, our
business and results of operations could be materially adversely affected.
We face competition from many sources
The market in which we operate is highly competitive and highly fragmented.
Currently, our competition falls into four categories:
. free individual locator and information services, including services
offered by major Internet portals and directories, telephone companies
and other third parties who publish free printed or electronic
directories;
. fee-based Internet search services offering comparable services, such as
KnowX.com, a division of Information America;
. firms offering more comprehensive public record information, such as
LEXIS-NEXIS, a division of Reed Elsevier Inc., The Dun & Bradstreet
Corporation, Reuters Limited, Avert, Inc. and ChoicePoint, Inc.; and
. local, regional and national private investigation firms, such as Kroll-
O'Gara Company, Pinkerton, the Proudfoot Reports Division of ASI
Solutions, Inc., and a significant number of companies operating on
either a national scale or a local or regional basis.
Many of these companies have greater financial and marketing resources than
we do and may have significant competitive advantages through other lines of
business, their existing client base and other business relationships. Some of
these competitors do not currently offer public record search sales over the
Internet, but they may do so in the future. There are no significant barriers
that would prevent new companies from entering the market in which we operate.
These competitors and other potential competitors may undertake more extensive
marketing campaigns, adopt more aggressive pricing policies and devote more
resources to developing public record search services for individual or
corporate clients than we are willing or able to accomplish. Our competitors or
potential competitors may develop services that are superior to ours, develop
services less expensive than ours or that achieve greater market acceptance
than our services. In addition, some of our current suppliers and current or
future advertising partners may compete with us in the future, which may make
it more difficult to advertise our services effectively on their Web sites.
We may not be able to successfully compete against our current or future
competitors with respect to any of these factors. As a response to changes in
the competitive environment, we may make certain pricing, service or marketing
decisions such as reducing our prices or increasing our advertising. If we are
unsuccessful in responding to our competitors, our business and results of
operations will be materially adversely affected.
8
<PAGE>
We depend on third party database and other information suppliers
We obtain a majority of the data used in our services from a limited number
of third party suppliers. We currently do not have long term agreements with
any of these suppliers. We currently pay our suppliers on a per transaction
basis. If our current suppliers raise their prices or if the information they
provide becomes unavailable or unreliable, we will need to find alternative
sources of information. We may not be able to find suitable alternatives, which
could cause service disruptions, increased costs and reduced quality of our
services. Additionally, costs of obtaining data that may be necessary in our
new service offerings, such as criminal background information, could be
significantly higher, on a per transaction basis, than our current information
costs. Termination of existing agreements, or, failure after termination, to
enter into new agreements with third party suppliers on terms favorable to us,
could have a material adverse effect on our business and results of operations.
Additionally, failure to obtain the data and information necessary for our
intended service offerings at commercially reasonable costs or at all could
prevent us from offering these new services. If we are prevented from offering
new services, our business and results of operations could be materially
adversely affected.
We are controlled by certain stockholders and management
Prior to this offering, Kushner-Locke beneficially owned 86% of our
outstanding common stock. In addition, Peter Locke and Donald Kushner, the Co-
Chairmen of US SEARCH, are the Co-Chairmen and Co-Chief Executive Officers of
Kushner-Locke, which will own approximately % of the outstanding common stock
immediately after the offering. As a result, Kushner-Locke has and is likely to
continue to have significant influence over us, giving it the ability to take a
broad range of corporate actions without the approval of the other
stockholders, such as:
. electing a majority of our Board of Directors;
. removing any of our directors;
. amending our certificate of incorporation or bylaws;
. delaying or preventing a change in control, impeding a merger or
takeover or other business combination involving us; and
. otherwise controlling management and operations and the outcome of most
matters submitted for a stockholder vote.
Actions taken by Kushner-Locke could conflict with interests of our
stockholders. Also, as a result of the Kushner-Locke ownership and control, a
potential acquiror may be discouraged from making a tender offer or otherwise
attempting to obtain control of us which could have a material adverse effect
on the market price of our common stock. See "Management," "Principal and
Selling Stockholders" and "Certain Relationships and Related Transactions."
We may fail to succeed as an independent operating company
Prior to this offering, we received a substantial amount of financial and
operational support from our controlling stockholder, Kushner-Locke. Kushner-
Locke has provided us with cash funding in the form of loans or inter-company
advances and has provided guarantees to third party creditors and vendors.
Kushner-Locke has also provided us with insurance coverage and services and
personnel for various functions, such as legal, human resources, administrative
and accounting. Kushner-Locke has indicated that after this offering, it will
not continue to provide us with these services and does not intend to continue
to fund our operations or guarantee payments. As a result, we will be required
to fund operations on our own and hire additional administrative, sales,
advertising, financial and accounting personnel, including corporate officers,
to perform these functions. We may not be able to perform these functions
effectively as an independent company. We expect that our operating expenses
will increase as we establish the financial, administrative and managerial
infrastructure necessary to operate as an independent public company and as we
secure various forms of insurance coverage independent of Kushner-Locke. See
"Certain Relationships and Related Transactions."
9
<PAGE>
We depend on our key personnel and attracting qualified employees for our
future success
Our success depends to a significant degree upon the continued contributions
of our executive management team, including C. Nicholas Keating, Jr., our Chief
Executive Officer, and senior level financial, technical, marketing and sales
personnel. The loss of these or other members of our senior management team
could have a material adverse effect on our business and results of operations.
As of March 31, 1999, we had 100 full-time employees and 18 part-time
employees. We anticipate that the number of employees may increase
significantly during the next 12 months as we expand our existing service
offering and introduce and market new services to corporate and professional
clients. Competition for qualified employees is intense. Our success depends
upon our ability to attract and retain additional highly qualified senior
management and technical, sales and marketing personnel to support growing
operations. The process of locating and hiring personnel with the combination
of skills and attributes required to carry out our strategy is time-consuming
and costly. Our success also depends on our ability to effectively train and
maximize the productivity of our existing and future employees. The loss of key
personnel or the inability to attract additional qualified personnel to
supplement or, if necessary, to replace existing personnel, could have a
material adverse effect on our business and results of operations.
We are currently considering acquiring more space or possibly relocating to
a larger facility that would better address our needs. We may experience
employee turnover in connection with any relocation of our facility, which
would require us to hire and train new qualified personnel. Our operations may
be disrupted and our business and results of operations may be materially
adversely affected as we hire and train new qualified personnel.
Problems related to the "Year 2000 Issue" could adversely affect our business
We depend on the delivery of information over the Internet, a medium which
is susceptible to the Year 2000 Issue. The "Year 2000 Issue" is typically the
result of limitations of certain software written using two digits rather than
four to define the applicable year. If software with date-sensitive functions
are not Year 2000 compliant, they may recognize a date using "00" as the year
1900 rather than the year 2000. The Year 2000 Issue could result in a system
failure or miscalculations causing significant disruption of our operations,
including, among other things, interruptions in Internet traffic, accessibility
of our Web site, delivery of our service, transaction processing or searching
and other features of our services. It is possible that this disruption will
continue for an extended period of time.
We depend on information contained primarily in electronic format in
databases and computer systems maintained by third parties, including
governmental agencies. The disruption of third-party systems or our systems
interacting with these third party systems could prevent us from receiving
orders or delivering search results in a timely manner. In addition, we rely on
the integration of many systems in aggregating search data from multiple
sources. The failure of any of those systems as a result of Year 2000
compliance issues could prevent us from delivering our products and services.
Failure of our systems or third party systems providing information used in our
services could materially adversely affect our business and results of
operations. We do not currently have any information concerning the Year 2000
compliance status of these third parties.
We have not completed a formal audit of our internal systems. We are seeking
written confirmation of the Year 2000 status of our third party software. We
are also utilizing internal resources to test internally developed software for
Year 2000 compliance. We may be required to modify or replace significant
portions of our software so that our systems will function properly with
respect to dates in the year 2000 and thereafter. If we are unable to make the
required modifications or conversions in a timely and cost-effective manner or
if there is a malfunction in our systems, potential systems interruptions or
delays in services may have a material adverse effect in our business and
results of operations. Further, if we fail to successfully resolve these
issues, some or all of our operations may shut-down, which would have a
material adverse effect on our business and results of operations.
10
<PAGE>
We have not yet fully developed a comprehensive contingency plan to address
situations that may result if we are unable to achieve Year 2000 readiness of
our critical operations. Development of contingency plans is in progress and is
expected to be developed in detail and expanded during the second half of 1999.
We may not be able to develop a contingency plan that will adequately address
all Year 2000 issues. Our failure to develop and implement, if necessary, an
appropriate contingency plan could materially adversely affect our business and
results of operations.
Our business depends on the continued growth and improvement of the Internet
Since we offer a significant portion of our services over the Internet, our
future success depends on the continued growth of, and reliance of consumers
and businesses on, the Internet. Use and growth of the Internet will depend in
significant part on continued rapid growth in the number of households and
commercial, educational and government institutions with access to the
Internet. The use and growth of the Internet will also depend on the number and
quality of products and services designed for use on the Internet. Because use
of the Internet as a source of information, products and services is a
relatively recent phenomenon, it is difficult to predict whether the number of
users drawn to the Internet will continue to increase and whether any
significant market for commercial use of the Internet will continue to develop
and expand. Internet use patterns may decline as the novelty of the medium
recedes. The quality of products and services offered online may not support
continued or increased use.
The rapid rise in the number of Internet users and the growth of electronic
commerce and applications for the Internet has placed increasing strains on the
Internet's communications and transmission infrastructure. This could lead to
significant deterioration in transmission speeds and the reliability of the
Internet as a commercial medium and could reduce the use of the Internet by
businesses and individuals. The Internet may not be able to support the demands
placed upon it by this continued growth. Any failure of the Internet to support
growth due to inadequate infrastructure or for any other reason would seriously
limit its development as a viable source of commercial and interactive content
and services. This could materially adversely affect the acceptance of our
services and our business.
Our success depends on our ability to protect and enforce our trademarks and
other proprietary rights
We rely on a combination of trademark, service mark, copyright and trade
secret laws, restrictions on disclosure and transferring title and other
methods to protect our proprietary rights. We also generally enter into
confidentiality agreements with our employees, business partners and/or others
to protect our proprietary rights. It may be possible for a third party to copy
or otherwise obtain and use our proprietary information without authorization
or to develop similar technology independently.
"1-800 U.S. SEARCH" and "Reuniting America Two People at a Time" are our
registered trademarks. In addition, we have applied for registered trademark
status for "US SEARCH", "The Public Record Portal" and our logo and service
marks in the United States and intend to pursue registration internationally
through applications. Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our products
and services are made available, online or otherwise. Also, policing
unauthorized use of our trademark, service mark or other proprietary rights
might be difficult and expensive and we may be unable to protect our brand and
our trademarks from third party challenges. We know of at least one competitor
that has a corporate name and domain name similar to ours. This competitor also
has a Web site with a similar look and feel to our Web site. We believe that
these similarities may cause confusion on the part of potential clients, and
this confusion may harm our business and results of operations. In addition, we
currently do not have the rights to use the domain name USSEARCH.com and may
not ever be able to obtain the rights necessary to use this domain name. We may
be unable to prevent third parties from acquiring domain names that are similar
to, infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights. Our US SEARCH brand may suffer and our business and results
of operations could be materially and adversely affected if we are unable to
effectively protect or enforce our trademark, service marks or other
proprietary rights.
11
<PAGE>
We face significant security and fraud related risks
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. We rely
on encryption and authentication technology licensed from third parties to
provide security and authentication necessary to effect secure transmission of
confidential information, such as customer credit card numbers. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments may result in a compromise or breach of the algorithms
used by us to protect customer transaction data. If any compromise of our
security were to occur, it could materially adversely affect our reputation and
business. A party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations
and damage to our reputation and customers' willingness to engage in online
commerce with us specifically. We may be required to expend significant capital
and other resources to protect against these security breaches or to alleviate
problems caused by these breaches.
Concerns over the security of transactions conducted on the Internet and the
privacy of users may also inhibit the growth of online services, especially as
a means of conducting commercial transactions. If our third-party contractors
experience security breaches involving the storage and transmission of
proprietary information, such as credit card numbers, our reputation may be
damaged and we may be exposed to risk of loss or litigation. Our failure to
prevent any security breaches may have a material adverse effect on our
business and results of operations. In addition, like many other service
providers who accept credit card information without a signature over the
telephone or Internet or who provide 900 telephone service, we have issued
credits as a result of orders placed with fraudulent credit card information.
We may suffer losses as a result of fraudulent use of credit card information
or the continued reliance on 900 telephone service in the future.
We could face liability based on the nature of our services and the content of
the materials that we provide
We may face potential liability from individuals, government agencies or
businesses for defamation, invasion of privacy, negligence, copyright, patent
or trademark infringement and other claims based on the nature and content of
the materials that appear on our Web site or in our search reports sent to
consumers. Although we carry a limited amount of general liability insurance,
our insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. In addition, this insurance
may not remain available to us on acceptable terms. Any imposition of
liability, particularly liability that is not covered by insurance or is in
excess of our insurance coverage, could have a material adverse effect on our
reputation and our business and results of operations.
We could be held liable to clients and/or to the subjects of individual
background check reports prepared by us for inaccurate information or misuse of
the information. We maintain internal policies designed to help ensure that
background information retrieved by us is accurate and that it otherwise
complies with the provisions of the Fair Credit Reporting Act, or the "FCRA,"
and similar state laws. However, we do not currently maintain liability
insurance to cover claims by clients or the subjects of reports. Generally,
losses from these claims are either uninsurable or the insurance that is
available is so limited in coverage that it is not economically practicable. We
intend to continue our efforts to obtain insurance coverage for these types of
claims but adequate insurance coverage may not be available on terms acceptable
to us. Claims of violations of the FCRA or similar state laws may be made
against us in the future or that these claims, if made, can be successfully
defended. Uninsured losses from claims could materially adversely affect our
business and results of operations.
We face risks associated with government regulation and legal uncertainties
relating to the Internet
We are subject to regulations applicable to businesses generally and laws or
regulations specifically applicable to access to online commerce. Due to
concerns arising in connection with the increasing popularity
12
<PAGE>
and use of the Internet, a number of new or changed laws, governmental policies
and/or regulations may be adopted, or cases may be decided, with respect to the
Internet or commercial online services covering issues such as property
ownership, user privacy, libel, pricing, acceptable content, copyrights,
trademarks and/or other intellectual property rights, distribution, taxation,
access charges and other fees, and quality of products and services. In
addition, cost increases to those entities which maintain Internet servers for
use by us in connection with the provision of online services by us could
result in these increased costs being passed along to us and to other content
providers, and ultimately to end users. These cost increases to Internet end
users could dampen the growth in use of the Internet and decrease the
acceptance of the Internet as a communications and commercial medium, which
could have a material adverse effect on our business and results of operations.
Due to the global nature of the Internet, it is possible that the
governments of other states or foreign countries might attempt to regulate our
business or levy sales or other taxes relating specifically to our activities.
In addition, tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in online commerce, and new
state tax regulations may subject us to additional state sales and income
taxes. Any new tax legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and commercial online services could have a material adverse effect on our
business, and results of operations. Violations of local laws may be alleged or
charged by state or foreign governments. We might unintentionally violate these
laws, these laws may be modified or new laws may be enacted, in the future. Any
of these developments could have a material adverse effect on our business and
results of operations.
Our services are subject to various federal and state laws and licensing
requirements
Some of our services, particularly individual background checks, may cause
us to be considered a "consumer reporting agency," as this term is used in the
FCRA. If so, we may be required to comply with the various consumer credit
disclosure requirements of the FCRA. Willful or negligent noncompliance with
the FCRA could result in civil liability to the subjects of reports. Also, the
Americans with Disabilities Act of 1990, or the "ADA", contains pre-employment
inquiry and confidentiality restrictions designed to prevent discrimination
against individuals with disabilities in the hiring process. Although our
business is not directly regulated by the ADA, the use by our clients of
certain information sold to them is regulated, both in respect to the type of
information and the timing of its use. Similarly, there are a number of states
which have laws similar to the FCRA, and some states which have laws more
restrictive than the ADA. Many state laws limit the type of information which
can be made available to the public. Certain state laws may require us to be
licensed in order to conduct pre-employment background checks. Clients in these
states can access our Web site, which may subject us to the laws of those
states. In the event we are determined to have violated these federal or state
laws, we could be subject to substantial civil and/or criminal liability which
could have a material adverse effect on our business and results of operations.
See "Business--Governmental Regulation."
Many privacy and consumer advocates and federal regulators have become
increasingly concerned with the use of personal information, particularly
consumer credit reports (which we do not provide). However, we use the social
security numbers of individuals to search various databases, including those of
consumer credit reporting agencies. For example, we search the "header"
information contained in various consumer credit reporting agencies' databases
to find, among other items, current and previous addresses, social security
numbers used by an individual, or possible other names (such as maiden names,
married names, etc.). We also search these databases to determine if a
customer's social security number is being used by any other party. Attempts
have been made and can be expected to continue to be made by various federal
regulators and organized groups to adopt new or additional federal and state
legislation to regulate the use of personal information. Federal and/or state
laws relating to access and use of personal information, in general, and
privacy and civil rights, in particular, amended or enacted in the future could
materially adversely affect our business and results of operations. See
"Business--Government Regulation."
13
<PAGE>
A number of states require consumer reporting agencies, which may be deemed
to include us, to obtain a license to conduct business within those states. As
clients access our Web site, we may become subject to the laws of those states.
We intend to apply for the necessary licenses in each state where we conduct a
substantial part of our business.
Our services may suffer as a result of natural disasters
Our ability to successfully receive and complete search requests and provide
high-quality client service largely depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. Substantially
all of our computer and communications hardware is currently located at
facilities in Southern California, which is an area susceptible to earthquakes.
Our systems and operations may be vulnerable to damage or interruption from
earthquakes, fire, flood, power loss, telecommunications failure, break-ins and
similar events. We do not carry business interruption insurance sufficient to
compensate fully for all losses, and in certain events, any losses from any or
all these types of events.
Management has broad discretion on how to use the proceeds from this offering
A substantial portion of the net proceeds we receive in connection with this
offering will be for advertising and promotion of our services and US SEARCH
brand, development of infrastructure and new services, repayment of debt,
including amounts owed to Kushner-Locke, capital expenditures and other working
capital and general corporate purposes. Management will have broad discretion
with respect to the expenditure of the net proceeds from this offering. You
will be entrusting your funds to our management, upon whose judgment you must
depend, with limited information concerning the specific working capital
requirements and general corporate purposes to which the funds will ultimately
be applied. We may not be able to yield a significant return on any investment
of the proceeds. See "Use of Proceeds."
We may need to raise additional capital that may not be available
We currently believe that our existing capital resources, combined with the
net proceeds of this offering, will be sufficient to meet our presently
anticipated cash requirements through at least the next 12 months. However, we
may need to raise additional capital and we cannot be certain that we will be
able to obtain additional financing on favorable terms, if at all. If we cannot
raise necessary additional capital on acceptable terms, we may not be able to
develop or enhance our services, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements, any of which
could have a material adverse effect on our business and results of operations.
If additional capital is raised through the issuance of equity securities, the
percentage ownership of the stockholders of US SEARCH will be reduced,
stockholders may experience dilution in net book value per share, or these
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. Any debt financing, if available, may involve
covenants limiting, or restricting our operations or future opportunities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
We may face risks associated with potential acquisitions
As part of our business strategy, in the future, we may make acquisitions
of, or significant investments in, complementary companies, products or
technologies, although we have no present understandings, commitments,
agreements or ongoing negotiations with respect to any acquisition or
investment. These future acquisitions, if any, would be accompanied by the
risks commonly associated with acquisitions of companies. These risks include,
among other things, the difficulty of assimilating the operations and personnel
of the acquired companies, the potential disruption of our ongoing business,
the diversion of resources from our existing businesses, Web sites and
technologies, the inability of management to maximize our financial and
strategic position through the successful incorporation of the acquired
technology into our products and services, additional expenses associated with
amortization of acquired intangible assets, the maintenance of uniform
standards, controls, procedures and policies and the impairment of
relationships with employees and
14
<PAGE>
clients as a result of, among other things, any integration of new management
personnel. We may not be successful in overcoming these risks or any other
problems encountered with these acquisitions, and our inability to overcome
these risks could have a material adverse effect on our business and results of
operations.
Our certificate of incorporation, bylaws and Delaware law contain provisions
that could discourage a third party from acquiring us and consequently decrease
the market value of our common stock
Our certificate of incorporation grants our Board of Directors the authority
to issue up to 1,000,000 shares of preferred stock, and to determine the price,
rights, preferences, privileges and restrictions, including voting rights of
these shares without any further vote or action by the stockholders. Since the
preferred stock could be issued with voting, liquidation, dividend and other
rights superior to those of the common stock, the rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued. The issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock which could
decrease the market value of our stock. Further, provisions in our certificate
of incorporation and bylaws and of Delaware law could have the effect of
delaying or preventing a third party from acquiring us, even if a change in
control would be in the best interest of our stockholders. These provisions
include the inability of stockholders to act by written consent without a
meeting and procedures required for director nomination and stockholder
proposal. See "Description of Capital Stock."
Market price of our common stock could fluctuate
Prior to the offering, there has been no public market for the common stock.
The shares we are offering have been approved for trading on the Nasdaq
National Market. The initial public offering price will be determined by
negotiations between the underwriters and us and may not be indicative of the
market price for the common stock after this offering. We do not know the
extent to which investor interest will lead to the development of an active
public market. Investors may not be able to resell our common stock at or above
the initial public offering price. Many factors could cause the market price of
our common stock to fluctuate substantially including:
. future announcements concerning us or our competitors;
. variations in operating results;
. loss of a key supplier or customer;
. technological innovations such as changes in physical product formats or
delivery technologies;
. changes in product pricing policies by us, our suppliers, or
competitors; and
. changes in earnings estimates by securities analysts.
Specifically, certain market segments such as the Internet companies have
experienced very dramatic price and volume fluctuation from time to time and in
many cases from day to day. These fluctuations may or may not be based upon any
business or operating results. Our common stock may experience similar or even
more dramatic price and volume fluctuations which may continue indefinitely.
These fluctuations, as well as general economic and market conditions, may
have a material adverse effect on the market price of our common stock.
Future sales of our common stock may depress our stock price
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering or in
response to the perception that sales of large number of shares could occur. No
prediction can be made about the effect that future sales of common stock will
have on the market prices of shares. Upon completion of the offering, we will
have shares of common stock
15
<PAGE>
outstanding shares if the underwriters' over-allotment option is exercised
in full). Immediately upon effectiveness of this offering, the shares offered
hereby (plus any shares issued upon exercise of the underwriters' over-
allotment option) will be freely tradable. Of the remaining shares, are
subject to lock-up agreements under which the holders of these shares have
agreed not to sell or otherwise dispose of their shares for a period of 180
days after the date of the offering without the prior written consent of Bear,
Stearns & Co. Inc. Of the shares outstanding prior to the offering, all of
these shares will be shares of "restricted" common stock as the term is defined
under Rule 144 promulgated under the Securities Act. In addition, options to
purchase up to 1,610 shares of common stock from us are outstanding as of March
31, 1999 under our 1998 Stock Incentive Plan and 1999 Non-Employee Directors'
Stock Option Plan. Following the offering, it is expected that the shares
underlying these options will be registered. See "Management--1998 Stock
Incentive Plan," "Shares Eligible for Future Sale" and "Underwriting."
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares of
common stock that we are offering hereby will be approximately $ million, at
an assumed initial offering price of $ per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses payable by us. If the underwriters' over-allotment option is exercised
in full, we estimate that the net proceeds will be approximately $ million.
We will not receive any proceeds from the sale of common stock by Kushner-
Locke.
We intend to use the net proceeds of this offering primarily for:
. advertising and promotion of our services and US SEARCH brand;
. expansion of our sales and marketing infrastructure to support new
services, including services to corporate and professional clients;
. expansion and improvements of our technology infrastructure,
including computer hardware and software;
. repayment of approximately $2.5 million in related party debt; and
. other working capital and general corporate purposes.
We intend to use approximately $2.2 million of the net proceeds of this
offering to repay certain advances and outstanding obligations to Kushner-
Locke. These advances are due on demand and bear interest at 10% per annum. We
intend to use approximately $296,000 of the net proceeds of this offering to
repay debt under a promissory note we assumed on behalf of Nicholas Matzorkis,
our co-founder, which matures in July 1999 and bears interest at 12% per annum.
We may apply an undetermined portion of the net proceeds of this offering to
acquire or invest in complementary businesses or technologies. However, we have
no present understandings, commitments or agreements and are not currently
engaged in any negotiations with respect to any material acquisition or
investment in third parties. Pending these uses, we intend to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth the capitalization of US SEARCH as of
December 31, 1998 on an actual basis and on a pro forma as adjusted basis to
reflect the issuance of 2,750 shares of common stock upon the conversion of
outstanding convertible subordinated notes, the issuance of 1,500 shares of
common stock upon the full exercise of outstanding warrants and the receipt of
proceeds of $2,750,000 on full exercise of these warrants, and the sale of
shares of common stock offered by us at an assumed initial public offering
price of $ per share and the receipt of the estimated net proceeds from the
offering, after deducting the underwriting discounts and estimated offering
expenses. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of December 31,
1998
--------------------
Pro
Forma As
Actual Adjusted(1)
------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents................................. $ 99 $
======= =======
Short-term borrowings..................................... $ 3,658 $
Long-term debt, net of current portion.................... 343
Stockholders' equity (deficit):
Common stock, $.001 par value; 40,000,000 shares
authorized; 10,000 shares issued and outstanding,
actual; shares issued and outstanding pro forma as
adjusted............................................... 1,205
Additional paid-in capital.............................. --
Accumulated deficit..................................... (8,954)
------- -------
Total stockholders' equity (deficit).................. (7,749)
------- -------
Total capitalization (deficit)...................... $(3,748) $
======= =======
</TABLE>
- ----------
(1) Does not include (a) up to shares issuable pursuant to the
underwriters' over-allotment option, (b) 1,610 shares reserved for issuance
upon the exercise of stock options outstanding as of March 31, 1999 under
our 1998 Stock Incentive Plan and our 1999 Non-Employee Directors' Stock
Option Plan, and (c) 1,608 shares available for future grant or issuances
under our 1998 Stock Incentive Plan and 1999 Non-Employee Directors' Stock
Option Plan.
The pro forma as adjusted amounts assume that the full $5.5 million
available under the convertible subordinated notes facility was drawn and
outstanding as of December 31, 1998.
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<PAGE>
DILUTION
Our net tangible book deficit as of December 31, 1998 was approximately
($7,749,000) or ($774.90) per share of common stock. After giving effect to the
matters described below on the net tangible book deficit as of December 31,
1998, we had an adjusted net tangible book value of approximately $ , or
$ per share of common stock. Net tangible book value per share, as
adjusted, represents the amount of total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding.
Without taking into account any other changes in the net tangible book value,
as adjusted, after December 31, 1998, other than to give effect to the receipt
by US SEARCH of the estimated net proceeds from the sale of the shares of
common stock offered by US SEARCH hereby at an assumed initial public offering
price of $ per share, the pro forma net tangible book value of US SEARCH as
of December 31, 1998, would have been approximately $ million, or $ per
share. This represents an immediate increase in the net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
---
Net tangible book value per share, as adjusted, before this
offering............................................................. $
Increase per share attributable to new investors......................
---
Pro forma net tangible book value per share after this offering.......
---
Dilution per share to new investors................................... $
===
</TABLE>
The following table sets forth the number of shares of common stock
purchased by US SEARCH, total consideration paid to US SEARCH, and the average
price per share paid by the existing stockholders and by new investors
purchasing shares in this offering, before deducting estimated underwriting
discounts and commissions and offering expenses payable by US SEARCH at an
assumed public offering price of $ per share.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
-------------- -------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % $ % $
New investors.......................
--- --- ----- ---
Total............................. 100% $ 100%
=== === ===== ===
</TABLE>
The foregoing table and the net tangible book value per share, as adjusted,
before this offering gives effect to the issuance of 500 shares of common stock
upon the assumed full exercise of outstanding warrants issued in September
1998; conversion of $5,500,000 convertible subordinated notes assumed to be
outstanding as of December 31, 1998 into 2,750 shares of common stock; and
issuance of 1,000 shares of common stock upon assumed full exercise of the
outstanding warrants issued in January 1999 and the receipt of proceeds of
$2,750,000 on full exercise of these warrants, of which none had been received
as of December 31, 1998. The foregoing table excludes an aggregate of 3,218
shares of common stock reserved for issuance under our 1998 Stock Incentive
Plan and 1999 Non-Employee Directors' Stock Option Plan, of which options to
purchase 1,610 shares of common stock were outstanding as of March 31, 1999.
19
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements of US SEARCH and related notes
included elsewhere in this prospectus. The statements of operations data for
each of the years in the three-year period ended December 31, 1998, and the
balance sheet data at December 31, 1997 and 1998, are derived from financial
statements of the Company audited by PricewaterhouseCoopers llp, independent
accountants, which are included elsewhere in this prospectus. The statements of
operations data for the year ended December 31, 1995, and the balance sheet
data for December 31, 1995 and 1996, are derived from audited financial
statements of the Company not included herein. The statements of operations
data for the period from November 3 to December 31, 1994 and balance sheet data
at December 31, 1994 are derived from unaudited financial statements of the
Company. The unaudited financial statements have been prepared on substantially
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of operations
for such periods. Historical results are not necessarily indicative of the
results to be expected in the future.
<TABLE>
<CAPTION>
From
November 3- Years Ended December 31,
December 31, --------------------------------------
1994 1995 1996 1997 1998
------------ -------- -------- -------- --------
Statement of Operations
Data: (in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Net revenues.............. $ 21 $ 899 $ 5,690 $ 2,971 $ 9,245
Cost of services.......... 23 595 3,363 1,501 3,769
-------- -------- -------- -------- --------
Gross profit (loss)....... (2) 304 2,327 1,470 5,476
-------- -------- -------- -------- --------
Operating expenses:
Advertising and
marketing............... -- 626 2,559 655 7,007
General and
administrative
expenses................ 7 188 1,007 1,165 3,882
Charge for warrants
issued to majority
stockholder(1).......... -- -- -- -- 1,190
-------- -------- -------- -------- --------
Total operating expenses.. 7 814 3,566 1,820 12,079
-------- -------- -------- -------- --------
Loss from operations...... (9) (510) (1,239) (350) (6,603)
Interest expense.......... -- (15) (64) (110) (197)
Other (expense) income,
net...................... -- 132 (60) 63 13
-------- -------- -------- -------- --------
Loss before income taxes.. (9) (393) (1,363) (397) (6,787)
Provision for income
taxes.................... -- 1 1 2 1
-------- -------- -------- -------- --------
Net loss.................. $ (9) $ (394) $ (1,364) $ (399) $ (6,788)
======== ======== ======== ======== ========
Basic and diluted net loss
per-share(2)............. $ $ $ $ $
======== ======== ======== ======== ========
Weighted-average shares
outstanding used in per-
share calculation(2).....
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------
1994 1995 1996 1997 1998
----- ----- ------- ------- -------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 7 $ 7 $ -- $ -- $ 99
Working capital (deficiency).......... 2 (432) (2,069) (2,363) (7,761)
Total assets.......................... 11 94 653 547 575
Long term debt, net of current
portion.............................. -- -- 81 61 343
Total debt............................ 5 233 850 903 4,001
Total stockholders' equity (deficit).. 6 (388) (1,752) (2,151) (7,749)
</TABLE>
- ----------
(1) For a description of the charge for warrants issued to the majority
stockholder, see Note 13 of notes to the financial statements.
(2) For a description of the method used to compute basic and diluted net loss
per share and weighted average number of shares outstanding, see Note 3 of
notes to financial statements.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Information" and the financial statements and related notes
contained elsewhere in this prospectus. This prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. The
cautionary statements made in this prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this prospectus. Our actual results could differ materially from those
discussed here as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this prospectus.
Overview
US SEARCH provides clients with quick, easy and inexpensive access to a
broad range of public record information about individuals. We offer our
services through our Web site and our toll free telephone number.
We report revenues net of any refunds to clients. We generate revenues from
the sale of various public record information and search services for clients.
Revenue is recognized as the results of these services are delivered to the
client.
Our cost of services consists primarily of payroll expenses, including
commissions paid to sales employees, data acquisition costs, local and long
distance telephone charges associated with providing our services, and payment
processing costs. In addition, we include an allocable portion of facilities,
network and technology infrastructure. Our cost of services is likely to
increase substantially as we obtain access to new data and information sources,
expand infrastructure to support an increase in marketing and sales personnel
to address existing and anticipated demand for our services.
Our operating expenses consist primarily of advertising, marketing, general
and administrative expenses. We expect our operating expenses to increase
substantially as we attempt to expand our sales and marketing force and hire
additional administrative, sales, advertising, financial and accounting
personnel. We may also need to relocate or seek new facilities that better
address our operational and personnel needs. We may incur higher costs and
possible disruption to our business as we hire and train new personnel to
replace those lost in an expansion or relocation of our facility. See "Certain
Relationships and Related Transactions."
Advertising and marketing expenses constitute the largest portion of our
operating expenses. Prior to the introduction of our Internet-based services,
advertising consisted primarily of radio and television advertising. With the
growth of our Internet-based services, an increasing portion of our advertising
expense consists of Internet-based advertising such as arrangements with
Internet portals and high traffic Web sites. Production costs associated with
such advertising are expensed in the period first aired or displayed to the
public. Costs relating to actual airing or display of such advertising are
expensed in the quarter the advertising appears. We expect our advertising and
marketing expenses to significantly increase as we offer new services, attempt
to expand our US SEARCH brand and build a corporate sales force.
We have non-cancelable advertising and marketing agreements with several
Internet companies. These agreements provide for varying levels of exclusivity
and require us to make monthly minimum payments based on the number of
impressions displayed on affiliate Web sites. As of March 31, 1999, the minimum
non-cancelable payments required under these agreements are approximately $5.4
million in 1999, $3.5 million in 2000, $3.0 million in 2001, and $1.0 million
in 2002.
Our general and administrative expenses consist primarily of compensation
and related costs for administrative personnel, fees for outside professional
advisors and an allocation of our occupancy costs and other overhead costs. We
expect the trend of increased general and administrative costs to continue as
we hire additional sales, research and executive personnel to promote new
services to corporate and professional clients.
21
<PAGE>
In September 1998, in consideration of prior advances and provision of
certain administrative services to us by Kushner-Locke and certain guarantees
made by Kushner-Locke on our behalf, we issued Kushner-Locke warrants to
purchase 500 shares of our common stock at an aggregate exercise price of
$5.00. Accordingly, we recorded a charge of approximately $2.0 million in 1998,
representing the fair market value of the warrants at the date of grant. See
"Certain Relationships and Related Transactions."
We incurred significant net losses of approximately $1.4 million in 1996,
$399,000 in 1997 and $6.8 million in 1998. At December 31, 1998, we had an
accumulated deficit of approximately $9.0 million. We expect to incur
significant additional losses and continued negative cash flow from operations
for the next year.
We expect to incur a charge of approximately $4.3 million in the first half
of 1999 relating to the beneficial conversion feature of the convertible
subordinated notes and warrants issued to Kushner-Locke in January 1999. This
charge represents (1) the fair value of the beneficial conversion feature of
the convertible subordinated notes, which is the difference between the
conversion price and the fair value of the common stock, multiplied by the
number of shares of common stock into which the notes can be converted, and (2)
the fair value of the warrants based on the Black-Scholes option pricing model.
Approximately $3.4 million of this amount relates to the convertible
subordinated notes and approximately $947,000 relates to the warrants issued in
January 1999. See "Certain Relationships and Related Transactions."
During the first quarter of 1999, we granted certain stock options to
employees and non-employee directors and will continue to grant options under
the 1998 Stock Incentive Plan and the 1999 Non-Employee Directors' Stock Option
Plan. We will record an unearned deferred compensation expense of approximately
$3.2 million, representing the difference between the deemed value of our
common stock for accounting purposes and the exercise price of such options at
the date of grant. This amount, net of amortization will be presented as a
reduction of stockholders' equity and amortized over the vesting period of the
applicable options. As a result, we currently expect to amortize the following
amounts of deferred compensation annually: approximately $1.8 million in 1999;
$925,000 in 2000; $378,000 in 2001; $122,000 in 2002; and $20,000 thereafter.
Results of Operations
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net revenues:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues............................................... 100 % 100 % 100 %
Cost of services........................................... (59) (51) (40)
--- --- ---
Gross profit............................................... 41 49 60
--- --- ---
Operating expenses:
Advertising and marketing................................ 45 22 76
General and administrative............................... 18 39 42
Charge for warrants issued to majority stockholder....... -- -- 13
--- --- ---
Total operating expenses................................... 63 61 131
--- --- ---
Loss from operations....................................... (22) (12) (71)
Interest expense........................................... (1) (4) (2)
Other (expense) income, net................................ (1) 3 --
--- --- ---
Loss before income taxes................................... (24) (13) (73)
Provision for income taxes................................. -- -- --
--- --- ---
Net loss................................................... (24)% (13)% (73)%
=== === ===
</TABLE>
22
<PAGE>
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
Net Revenues. Our net revenues increased to approximately $9.2 million for
the year ended December 31, 1998, or 211%, from approximately $3.0 million for
the year ended December 31, 1997. The increase is primarily attributable to
increased advertising, including the initiation of Internet-based advertising,
and improvement in the sales productivity of our operations center.
Gross Profit. Gross profit increased to approximately $5.5 million, or 273%,
for the year ended December 31, 1998 from approximately $1.5 million for the
year ended December 31, 1997. Gross profit as a percentage of net revenues
increased to approximately 60% for the year ended December 31, 1998, from 49%
in the year ended December 31, 1997. The increase is primarily attributable to
the introduction of Internet-based transactions and volume discounts on data
acquisition due to a higher number of transactions. Cost of services increased
to approximately $3.8 million for the year ended December 31, 1998, or 151%,
from approximately $1.5 million for the year ended December 31, 1997. As a
percentage of net revenues, cost of services decreased to approximately 40% for
the year ended December 31, 1998, from 51% for the year ended December 31,
1997.
Advertising and Marketing Expenses. Our advertising and marketing expenses
increased to approximately $7.0 million for the year ended December 31, 1998
from $655,000 for the year ended December 31, 1997. As a percentage of net
revenues, advertising and marketing expenses were approximately 76% for the
year ended December 31, 1998, as compared to 22% for the year ended December
31, 1997. This increase is primarily attributable to initiating Internet-based
advertising and increased television promotional fee advertisements.
General and Administrative Expenses. Our general and administrative expenses
increased to approximately $3.9 million for year ended December 31, 1998, or
233%, from approximately $1.2 million for the year ended December 31, 1997. As
a percentage of net revenues, general and administrative expenses increased to
approximately 42% for the year ended December 31, 1998, from approximately 39%
for the year ended December 31, 1997. This increase is primarily attributable
to professional and advisor fees associated with planned financings in 1998,
increased administrative and service charges for Kushner-Locke and increased
personnel costs. In addition, general and administrative expenses in 1998
include a non recurring charge of $296,000 relating to compensation expenses to
a stockholder. See "Certain Relationships and Related Transactions."
Charge relating to issuance of warrants to majority stockholder. In
September 1998, in consideration of Kushner-Locke's prior advances to the
Company, provision of certain administrative services to the Company and
certain guarantees made by Kushner-Locke on behalf of the Company, we issued
Kushner-Locke warrants to purchase 500 shares of our common stock at an
aggregate exercise price of $5.00. Accordingly, we recorded a charge of
approximately $1.2 million in 1998, representing the fair market value of the
warrants at the date of grant.
Interest Expense. Interest expense results primarily under our credit
facilities and other borrowing. Our interest expense increased to $197,000 for
the year ended December 31, 1998, or 79%, from $110,000 for the year ended
December 31, 1997. The increase is primarily attributable to the increased bank
borrowings under a line of credit from Comerica Bank and from interest on the
advances received from Kushner-Locke. We expect interest expense to increase in
the first half of 1999 as a result of increased borrowing from Kushner-Locke
under the convertible subordinated notes. The entire amount outstanding under
the convertible subordinated notes will be automatically converted into our
common stock on the closing of this offering. See "Certain Relationships and
Related Transactions" for a description of the convertible subordinated notes
to Kushner-Locke.
Income Taxes. As of December 31, 1998 we had approximately $3.5 million of
federal and $3.5 million of state net operating loss carryforwards to offset
future taxable income. Our net operating loss carryforwards expire beginning in
2017 for federal and 2002 for state. Our ability to utilize net operating loss
carryforwards may be limited in the event that a change in ownership, as
defined in the Internal Revenue Code, occurs in the future.
23
<PAGE>
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996
Net Revenues. Our net revenues decreased to approximately $3.0 million for
the year ended December 31, 1997, or 48%, from approximately $5.7 million for
the year ended December 31, 1996. The decrease is primarily attributable to a
decline in the number of customer telephone calls to our operations and support
center, which was primarily a result of a substantial reduction in advertising
expenditures. The effects of the declining call volume were offset, in part, by
an improved sales productivity which can be attributed to the introduction in
1997 of a 900 number telephone billing option for customer payments.
Gross Profit. Gross profit decreased to approximately $1.5 million, or 37%,
for the year ended December 31, 1997, from approximately $2.3 million for the
year ended December 31. 1996. Gross profit as a percentage of net revenues
increased to 49% for the year ended December 31, 1997 from 41% for the year
ended December 31, 1996. This increase is primarily attributable to a decrease
in cost of services as a result of staffing and operations reductions. Cost of
services decreased to approximately $1.5 million for the year ended December
31, 1997, or 55%, from approximately $3.4 million for the year ended December
31, 1996. As a percentage of net revenues, cost of services were 51% for the
year December 31, 1997, as compared to 59% for the year ended December 31,
1996.
Advertising and Marketing Expenses. Advertising and marketing expenses
decreased to $655,000 for the year ended December 31, 1997, or 74%, from
approximately $2.6 million for the year ended December 31, 1996. As a
percentage of net revenues, advertising and marketing expenses decreased to 22%
for the year ended. December 31, 1997, from 45% for the year ended December 31,
1996. This decrease is primarily attributable to our inability to fund
additional advertising during this period.
General and Administrative Expenses. General and administrative expenses
increased to approximately $1.2 million for the year ended December 31, 1997,
or 16%, from approximately $1.0 million for the year ended December 31, 1996.
As a percentage of net revenues, general and administrative expenses increased
to 39% for the year ended December 31, 1997, from 18% for the year ended
December 31, 1996. This increase is primarily attributable to an increase in
bad debt expense associated with the introduction of 900 number call revenues
as well as fixed costs in relation to the reduced revenue base.
Interest Expense. Interest expense increased to $110,000 for the year ended
December 31, 1997, or 72%, from $64,000 for the year ended December 31, 1996.
This increase is primarily attributable to the increasing average balance of
unpaid borrowings and to the addition of several capitalized equipment leases.
Subchapter S Election. Through November 1997, we had elected to be treated
as a Subchapter S company for income tax purposes. This provides for the pass-
through, to the individual taxable income of our stockholders, of all taxable
income and losses for federal income tax purposes and substantially all taxable
income and losses for state income tax purposes. For fiscal years 1996 and
1997, we recognized minimum federal and state income tax expense. Effective
November 1997, our Subchapter S election was terminated. We will be subject to
income taxes for periods subsequent to the termination. As of December 31,
1997, we had approximately $90,000 in net operating loss carryforwards.
24
<PAGE>
Selected Quarterly Results Of Operations
The following table sets forth certain unaudited statements of operations
data for the seven quarters ended December 31, 1998, in dollars and as a
percentage of net revenues. This data has been derived from unaudited financial
statements that, in the opinion of our management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information when read in conjunction with our annual
audited financial statements and the notes thereto. The operating results for
any quarter are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------
June 30, September 30, December 31, March 31, June 30, September 30, December 31
1997 1997 1997 1998 1998 1998 1998
-------- ------------- ------------ --------- -------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues................ $702 $ 737 $ 823 $1,804 $2,436 $ 2,704 $ 2,301
Cost of services............ 377 315 441 643 976 1,112 1,038
---- ----- ----- ------ ------ ------- -------
Gross profit................ 325 422 382 1,161 1,460 1,592 1,263
---- ----- ----- ------ ------ ------- -------
Operating expenses:
Advertising and marketing.. 56 220 250 670 1,851 2,429 2,057
General and
administrative............ 290 334 327 527 501 1,434 1,420
Charge for warrants issued
to majority stockholder... -- -- -- -- -- 1,190 --
---- ----- ----- ------ ------ ------- -------
Total operating expenses.... 346 554 577 1,197 2,352 5,053 3,477
---- ----- ----- ------ ------ ------- -------
Loss from operations........ (21) (132) (195) (36) (892) (3,461) (2,214)
Interest expense, .......... (28) (22) (37) (24) (46) (62) (65)
Other (expense) income,
net........................ 45 8 7 6 3 1 3
---- ----- ----- ------ ------ ------- -------
Loss before income taxes.... (4) (146) (225) (54) (935) (3,522) (2,276)
Provision for income taxes.. -- -- 2 -- -- -- 1
---- ----- ----- ------ ------ ------- -------
Net loss.................... $ (4) $(146) $(227) $ (54) $ (935) $(3,522) $(2,277)
==== ===== ===== ====== ====== ======= =======
<CAPTION>
Percentage of Net Revenues
-----------------------------------------------------------------------------------
June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1997 1997 1997 1998 1998 1998 1998
-------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues................ 100 % 100 % 100 % 100 % 100 % 100 % 100 %
Cost of services............ 54 43 54 36 40 41 45
---- ----- ----- ------ ------ ------- -------
Gross profit................ 46 57 46 64 60 59 55
---- ----- ----- ------ ------ ------- -------
Operating expenses:
Advertising and marketing.. 8 30 30 37 76 90 89
General and
administrative............ 41 45 40 29 20 53 62
Charge for warrants issued
to majority stockholder... -- -- -- -- -- 44 --
---- ----- ----- ------ ------ ------- -------
Total operating expenses.... 49 75 70 66 96 187 151
---- ----- ----- ------ ------ ------- -------
Loss from operations........ (3) (18) (24) (2) (36) (128) (96)
Interest expense, .......... (4) (3) (4) (1) (2) (2) (3)
Other (expense) income,
net........................ 6 1 1 -- -- -- --
---- ----- ----- ------ ------ ------- -------
Loss before income taxes.... (1) (20) (27) (3) (38) (130) (99)
Provision for income taxes.. -- -- (1) -- -- -- --
---- ----- ----- ------ ------ ------- -------
Net loss.................... (1)% (20)% (28)% (3)% (38)% (130)% (99)%
==== ===== ===== ====== ====== ======= =======
</TABLE>
In the quarter ended March 1998, net revenues increased approximately $1.0
million from the preceding quarter primarily due to the introduction of our
Internet-based services. In the quarter ended June 1998, our advertising and
marketing expenses increased by approximately $1.2 million from the preceding
quarter primarily due to the introduction of Internet-based advertising. In the
quarter ended
25
<PAGE>
December 1998, net revenues decreased primarily due to customer confusion
relating to a temporary change in our television advertising strategy. In the
quarter ended December 1998, we reduced our advertising and marketing expenses
due to our capital constraints.
Our quarterly revenues and operating results have fluctuated in the past,
and may significantly fluctuate in the future due to a variety of factors, many
of which are outside of our control. These factors include:
. service interruption and costs relating to expansion of our networking
infrastructure and facilities;
. fluctuations in the cost of television, radio, print and Internet-based
advertising;
. inability to maintain or develop relationships with various key Internet
companies and high traffic Web sites;
. delays and costs associated with unsuccessful service introductions;
. increased turnover of our sales or support personnel due to a relocation
of our facilities or for other reasons;
. inability to attract and retain qualified personnel in a timely and
effective manner;
. technical difficulties and system and service interruptions, including
Internet and Web site downtimes;
. loss of one or more database providers;
. productivity of advertisements and sales personnel;
. anticipating and responding to the introduction of new or enhanced
services by our competitors; and
. declines in perceived value, price or demand for our services.
Our business depends largely on our ability to attract new clients through
television and Internet-based advertising as well as other marketing efforts. A
substantial portion of our operating expenses are based on advertising
commitments on television programming and Internet portals, directories and Web
sites. We have non-cancelable fixed term contracts with many of our advertising
partners. As a result, a substantial portion of our expenses in any given
period is fixed and based in part on expectations of future revenue and
advertising and sales productivity. We may be unable to generate enough
revenues following this advertising to offset the related cost. We may also be
unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall.
From time to time, demand for our services following television or Internet-
based advertising has exceeded our infrastructure and operational capacity and
we were slow or unable to respond to client demand for our services. When these
events occurred, we may have lost clients and our reputation may have been
damaged.
Liquidity And Capital Resources
Cash and cash equivalents increased to $99,000 at December 31, 1998 as
compared to zero at December 31, 1997. This increase is primarily attributable
to cash flow from financing activities, namely our borrowings exceeding cash
flows from investing and operating activities.
Cash used by operations increased to approximately $1.4 million for the year
ended December 31, 1998 as compared to $321,000 for the year ended December 31,
1997. This increase is primarily attributable to the increase in our net loss
during 1998 partly offset by deferring payments in accounts payable.
Cash used in investing activities increased to $168,000 for the year ended
December 31, 1998 as compared to $32,000 for the year ended December 31, 1997.
This increase is primarily attributable to increased purchases of computer
hardware and software and other equipment.
26
<PAGE>
Cash provided by financing activities increased to approximately $1.6
million for the year ended December 31, 1998 as compared to $353,000 for the
year ended December 31, 1997. We received additional advances from Kushner-
Locke of approximately $1.8 million during the year ended December 31, 1998,
including approximately $1.2 million which in January 1999 was refinanced in
connection with the issuance of convertible subordinated notes to Kushner-
Locke. In addition, we received bank financing in the form of lines of credit.
Net borrowings under lines of credit were approximately $338,000 in 1998. These
amounts were partially offset by principal payments of approximately $238,000
made by us on notes payable, repayment of bank overdraft of $101,000 and
principal payments on capital leases.
We require substantial working capital to fund our operations and expect to
use a significant portion of the net proceeds of this offering to fund our
operating losses and capital expenditures.
Since inception we have experienced negative cash flow from operations and
expect to continue to experience significant negative cash flow from operations
in the foreseeable future. We currently believe that our existing capital
resources, combined with the net proceeds of this offering, will be sufficient
to meet our presently anticipated cash requirements through at least the next
12 months. After the next 12 months, we may be required to obtain additional
funds through equity or debt financing. No assurance is given that we will not
be required to raise additional financing prior to that time. Furthermore,
there is no assurance that additional financing will be available when needed
or that, if available, the financing will be on favorable terms. If the
financing is not available when required or is not available on acceptable
terms, we may be unable to develop or enhance our services, take advantage of
business opportunities or respond to competitive pressures, any of which could
have a material adverse effect on our business and results of operations.
In June 1998, US SEARCH became a guarantor of Kushner-Locke's $60 million
credit facility with The Chase Manhattan Bank. In connection with this credit
facility, we granted Chase a security interest in all of our assets. We
anticipate that upon the consummation of this offering, we will be released
from this security interest and we will no longer be a guarantor of this credit
facility.
Year 2000 Issue
We depend on the delivery of information over the Internet, a medium which
is susceptible to the Year 2000 Issue. The "Year 2000 Issue" is typically the
result of limitations of certain software written using two digits rather than
four to define the applicable year. If software with date-sensitive functions
are not Year 2000 compliant, they may recognize a date using "00" as the year
1900 rather than the year 2000.
Risks
The Year 2000 Issue could result in a system failure or miscalculations
causing significant disruption of our operations, including, among other
things, interruptions in Internet traffic, accessibility of our Web site,
delivery of our service, transaction processing or searching and other features
of our services. It is possible that this disruption will continue for an
extended period of time. We depend on information contained primarily in
electronic format in databases and computer systems maintained by third
parties, including governmental agencies. The disruption of third-party systems
or our systems interacting with these third party systems could prevent us from
receiving orders or delivering search results in a timely manner. In addition,
we rely on the integration of many systems in aggregating search data from
multiple sources. The failure of any of those systems as a result of Year 2000
compliance issues could prevent us from delivering our products and services.
Failure of our systems or third party systems providing information used in our
services could materially adversely affect our business and results of
operations. We do not currently have any information concerning the Year 2000
compliance status of these third parties.
Readiness for Year 2000
We have not completed a formal audit of our internal systems. We are seeking
written confirmation of the Year 2000 status of our third party software. We
are also utilizing internal resources to test internally
27
<PAGE>
developed software for Year 2000 compliance. We may be required to modify or
replace significant portions of our software so that our systems will function
properly with respect to dates in the year 2000 and thereafter. If we are
unable to make the required modifications or conversions in a timely and cost-
effective manner or if there is a malfunction in our systems, potential systems
interruptions or delays in services may have a material adverse effect in our
business, financial condition and results of operations. Further, if we fail to
successfully resolve these issues, some or all of our operations may shut-down,
which would have a material adverse effect on our business, financial condition
and results of operations.
Contingency Plans
We have not yet fully developed a comprehensive contingency plan to address
situations that may result if we are unable to achieve Year 2000 readiness of
our critical operations. Development of contingency plans is in progress and is
expected to be developed in detail and expanded during the second half of 1999.
We may not be able to develop a contingency plan that will adequately address
all Year 2000 issues. Our failure to develop and implement, if necessary, an
appropriate contingency plan could materially adversely affect our business and
results of operations.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the costs of computer software
developed or obtained for internal use." This statement provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. This statement is effective for fiscal periods commencing after
December 15, 1998. We do not believe that the implementation of this statement
will have a material impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and hedging activities and requires
companies to recognize all derivatives as either assets of liabilities in the
statement of financial position and measure those instruments at fair value.
The statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. We do not believe that the implementation of this
statement will have any material impact on our financial statements since we do
not presently engage in derivative or hedging activities.
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BUSINESS
Overview
US SEARCH provides clients with a single, comprehensive access point to a
broad range of public record information about individuals. Our services can be
accessed from anywhere and at any time through our Web site, 1800USSEARCH.com,
or by calling our toll free telephone number, 1-800 U.S. SEARCH. We currently
offer search services such as individual locator, individual profile report,
anti-fraud identification verification, nationwide court record, adoption and
reunion search services. We recently began offering individual locator and
individual profile report services to corporate and professional clients. In
the fourth quarter of 1999, we intend to introduce pre-employment background
screening and to establish US SEARCH as a leading source of this service to
corporations, professional organizations and government agencies.
Using our services is quick, easy and inexpensive. All of our searches are
highly automated and performed by electronically accessing multiple,
geographically-dispersed public record databases. We aggregate the requested
information and deliver the search results in a user-friendly format. A growing
number of searches can be conducted directly by clients via our Web site. For
example, our Internet-based "Instant Searches" are processed online, in a
completely automated fashion, and the results are often delivered in as little
as a few seconds or minutes. For more complex searches, we also provide value-
added search services, including assisted searches, both online and through our
toll free telephone number. Search results can be delivered through real-time
display on our Web site, by e-mail, telephone, facsimile or mail. We
continually evaluate our database and other information sources to ensure that
we make available the most timely, accurate and comprehensive public record
information to our clients.
Industry Background
Growth of the Internet and Electronic Commerce
The growth of the Internet has fueled electronic commerce. IDC, a market
research firm, has estimated that the number of Internet users worldwide will
grow from an estimated 100 million at the end of 1998 to an estimated 319
million in 2002. Several factors have fueled the growth of the Internet and its
increased use by businesses and consumers as a vehicle for commerce, including:
. the large and growing number of personal computers in the workplace and
home;
. continued improvements in network infrastructure and capacity;
. easy, low-cost access to the Internet and new navigation capabilities;
. the proliferation of online content and the development of specialized
online services; and
. the growing acceptance and awareness of the Internet among consumer and
business users.
The growth of the Internet as a global medium for communication and
information exchange has driven demand for content and services which can be
accessed and delivered online. In particular, the Internet provides the ability
to efficiently and rapidly search, access and manipulate information from a
wide variety of sources regardless of their location. Through electronic
commerce, these information services can be accessed and delivered online
quickly, easily and inexpensively.
Growing acceptance of electronic commerce has enabled businesses to offer
their products and services to a global audience and develop one-to-one
relationships with consumers without having to make significant investments in
traditional infrastructure such as retail outlets, distribution channels and
sales personnel. Technological advances that enable secure online transactions
have also facilitated an increase in electronic commerce. In addition,
consumers can access a broader selection of goods, efficiently compare goods
and make informed purchasing decisions. Consumers also benefit from the
increased convenience of purchasing goods and services from anywhere at anytime
using their personal computers.
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As a result, the volume of business transacted on the Internet is increasing
substantially. IDC estimates that the total value of goods and services
purchased over the Internet worldwide will grow from approximately $32 billion
in 1998 to approximately $425 billion per year by the end of 2002. IDC also
estimates that business to consumer commerce on the Internet will increase from
approximately $5 billion in 1997 to approximately $95 billion in 2002. Business
to business commerce on the Internet is expected to grow from approximately $7
billion in 1997 to approximately $331 billion in 2002.
The Fragmented Nature of Public Record Information
A considerable amount of public record and publicly available information
exists with respect to every individual. This information includes names and
addresses, aliases, driving records, nationwide court records, property
ownership and bankruptcies. However, the sources of this information are often
fragmented, geographically dispersed and poorly indexed. In addition, the
reliability of this information may not be consistent and data provided by
multiple sources may not be consistent. In this environment, individuals,
businesses and government agencies who wish to access public record information
are faced with the time-consuming, costly and difficult task of gathering data
from numerous locations and sources. Even after gathering the data, consumers
may not be able to adequately verify the information and organize it into a
useful format.
While services and technologies have developed to enable remote access to
public record information, there generally has been no single, comprehensive
access point for the multitude of public record information available on
individuals. Other sources, including credit reporting services and other
database services, make available only limited types of information for
specific purposes, such as verifying individual credit records. These services
are typically expensive, charging a fee or requiring a subscription prior to
use. More comprehensive search and background check services are available
through private investigation firms, but they are typically too detailed and
expensive to permit general use by the public.
Highly Mobile Society
In addition, our society is highly mobile and constantly changing: people
are moving, getting married or divorced, changing jobs, changing names,
acquiring and disposing of assets and interacting with different private and
public entities for personal, professional and commercial reasons. These
population and market dynamics often make it very difficult to maintain contact
with friends, relatives and others and to verify individual background and
reference information for important business, personal or other purposes.
According to research published by the U.S. Department of Commerce's Census
Bureau, between March 1996 and March 1997, about 42 million Americans, 16% of
the population, moved. In addition, according to research published by the
Bureau of National Affairs, the average monthly employee turnover rate for 1998
was approximately 1.1% of the U.S. work force. Moreover, according to the U.S.
Bureau of Labor Statistics, in February 1998, the average worker in the U.S.
had been with their current employer for only 3.6 years. According to the U.S.
Bureau of Labor Statistics, approximately 26 million individuals re-entered the
United States work force in 1998.
The fragmented nature of public record data sources and the highly mobile
nature of our society has resulted in a significant demand for public record
information about individuals. A significant market opportunity exists for
public record information about individuals which is easily accessible,
aggregated and made available in a timely, convenient and inexpensive manner.
We believe that current public record information sources do not provide
consumers quick, easy and cost-effective access to and searching of multiple,
geographically-dispersed public and proprietary databases and information
sources.
US SEARCH Solution
US SEARCH provides clients with quick, easy and inexpensive access to a
broad range of public record information about individuals. Our services can be
accessed from anywhere, at any time through our Web site,
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1800USSEARCH.com, or by calling our toll free telephone number, 1-800 U.S.
SEARCH. We perform searches quickly by electronically accessing multiple,
geographically-dispersed public record databases, aggregating the requested
information, and then delivering the search results in a user-friendly format,
often within seconds or minutes. Search results can be delivered through real-
time display on our Web site, by e-mail, telephone, facsimile or mail. All of
our searches are highly automated. A growing number of searches can be
conducted by our clients online via our Web site. We also provide our clients
with value-added search services, such as assisted searches, both online or
through our toll free telephone number. We continually evaluate our database
and other information sources to ensure that we make available the most timely,
accurate and comprehensive public record information to our clients.
We believe the accessible and timely nature of our services differentiates
us from other public record information sources and increases and facilitates
demand for our services. We also believe that the combination of convenient
access via the Internet or telephone, comprehensive data aggregation and search
support provides a faster, cheaper and more accurate search solution than is
available through alternative measures. Key benefits of our services include:
Single Access Point to Broad Range of Public Record Information Services. We
provide clients with a single, comprehensive access point to a broad range of
public record information about individuals. Through our Web site and toll free
telephone number, we provide individual locator, individual profile report,
anti-fraud identification verification, nationwide court record, adoption and
reunion search services. We also offer a number of our services, such as
individual locator and individual profile report services, to corporate and
professional clients. We intend to expand our corporate and professional
service offerings by introducing pre-employment background screening in the
fourth quarter of 1999. We believe that by providing a broad range services at
multiple price points, we encourage clients to perform multiple searches and
tailor our service based upon their information needs and cost concerns.
Expanding Range of Online Search Services. We believe that our online
searches provide clients with the most convenient, effective and lowest cost
access to public record information about individuals. Online searches access
public record databases electronically and can be performed quickly and
effectively by the client on our Web site. In the case of our Internet-based
"Instant Searches," which include individual locator, first name only and
national death record searches, the search request is processed online, in a
completely automated fashion, and the results are often delivered in as little
as a few seconds or minutes. Our online searches currently consist of "Instant
Searches," individual locator, individual profile report, anti-fraud
identification verification, nationwide court records and adoption and reunion
searches. We intend to increase the number of online searches, including the
number of "Instant Searches," available to our clients.
Growing Access to Public Record Information Sources. We electronically
access and aggregate data from multiple, geographically-dispersed public record
databases and other information sources. These data sources provide us with
instant access to a wide variety of information about individuals such as
aliases, bankruptcies, past and current addresses and telephone numbers,
driving record, property ownership and court judgments. We continually evaluate
our information sources to ensure that we have access to the most timely,
accurate and comprehensive public record information. We will continue to gain
access to additional online databases in order to expand the number of online
searches offered to our clients.
Value-Added Search Services. We provide value-added search services assisted
by our search specialists for more complex and in-depth public record search
requests. We are often able to fulfill a client's search request based on only
very minimal client input information, such as a first and last name or a date
of birth. We provide both pre-and post-sales support via e-mail, live online
chat rooms and telephone-based client services and search consultations, 24
hours a day, seven days a week. Our search specialists are trained to perform
searches, help clients define search criteria, refine the search process to
produce the most useful results for clients, and assist clients in
understanding the search results.
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US SEARCH Strategy
Our objective is to be the leading provider of public record information and
search services for individual, corporate and professional clients. Our
strategy includes the following key elements:
Strengthen the US SEARCH Brand. We began marketing our services under our 1-
800 U.S. SEARCH brand. This brand has already gained significant market
acceptance as a high-quality and cost-effective individual public record
information and search service. We intend to strengthen our brand position
through increased advertising, emphasis on our 1800USSEARCH.com Web site and
promotion of additional public record information and search services under the
US SEARCH brand. We also intend to combine increasing Internet advertising and
Internet marketing alliances with strategically placed television advertising
to attract a greater number of users to our Web site.
Leverage Efficiencies of the Internet. We are committed to offering a
greater number of Internet-based "Instant Searches" and expanding the type and
nature of information that can be accessed through our Web site. To do this, we
intend to increase the use and accessibility of our Web site and enhance our
technology infrastructure to accommodate electronic access to additional public
record information sources, increase the speed and automation of search and
delivery processes, and improve our user interface, navigation and transaction
processing.
Expand Range of Service Offerings. We believe that by providing a broad
range of services at multiple price points, we promote increased use of our
services and offer a better value than alternative sources, such as hiring a
private investigator or using one's own time and resources to conduct a search.
We regularly evaluate potential service offerings and will promote new services
to our clients. To do this, we plan to gain access to additional third party
content and database information and enter into marketing alliances with major
Web sites to offer integrated search services to clients. We intend to monitor
the market acceptance of new service offerings and combine complementary
services to encourage multiple searches by the same client.
Develop Corporate and Professional Service Offerings. Our public record
information and search services for corporate and professional clients
currently include individual locator and individual profile report search
services. We intend to further develop and expand these service offerings by
introducing new services such as pre-employment background screening and by
providing customized Web pages that allow rapid processing of high volume
search requests by corporate and professional clients. We plan to offer these
services primarily to corporate and professional organizations, such as
nationwide retailers, insurance companies, health care providers and lodging
and transportation companies. In addition, we are establishing a corporate
sales force and a team of research specialists to increase the marketing of our
services to prospective professional and corporate clients and to address the
specific needs of each corporate and professional client.
US SEARCH Services
US SEARCH provides individual, corporate and professional clients with
quick, easy and inexpensive access to a broad range of public record
information about individuals. A client can request a search from anywhere, at
any time through our Web site, 1800USSEARCH.com, or by calling our toll free
telephone number, 1-800 U.S. SEARCH. We perform the search quickly by
electronically accessing multiple, geographically-dispersed public record
databases, aggregating the requested information, and then delivering the
search results in a user-friendly format, often within seconds or minutes. We
are often able to fulfill a client's search requests based on only very minimal
client input information, such as a first and last name or a date of birth. Our
services are available 24 hours a day, seven days a week.
We provide clients with a single, comprehensive access point to a broad
range of public record information about individuals. The fees for our services
range from $10.00 to $139.95 per transaction based on the nature and amount of
information gathered and whether or not the search is assisted by one of our
search specialists. We believe that by providing a broad range of services at
multiple price points, we promote increased use of our services and offer a
better value than alternative sources. We intend to expand our service
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offerings to include pre-employment background screening and other services for
corporate and professional clients and government agencies.
All of our searches are highly automated. A growing number of our searches,
such as our "Instant Searches," can be conducted by clients online via our Web
site 1800USSEARCH.com. We also offer value-added search services assisted by
our trained search specialists for complex and in-depth search requests. Our
search specialists conduct search consultations, during which they perform
searches, define search criteria, suggest further complementary searches,
refine the search process to produce the most useful results for the client,
and assist clients in understanding the search results. Assisted searches are
available to clients directly by calling 1-800 U.S. SEARCH, after online
searches or during customer service consultations.
The table below illustrates our current service offerings. Prices for our
services vary based on the nature and amount of information gathered and
whether or not the search is assisted by a search specialist.
<TABLE>
<CAPTION>
Name of Search Service Typical Selling Prices Type of Search Results
---------------------- -------------------------- ------------------------
<C> <C> <S>
"Instant Searches"...................... $10 for first search First and last name,
-people locator search $5 for additional searches address, telephone
-first name only search number, date of birth,
-national death records search date of death and
the city, state and zip
code where the
death benefits were
issued
Individual Locator...................... $39.95-$69.95 Address and/or telephone
number of the
person
Individual Profile Report............... $69.95-$139.95 First and last name,
aliases, current and
previous addresses,
phone numbers, driving
records, vehicle
ownership, bankruptcies,
property ownership,
nationwide court
records, and corporate
affiliations
Anti-Fraud Identification Verification.. $50.00-$79.95 Addresses associated
with the social security
number, telephone
number, date of birth,
any known aliases, and
name variations of the
social security number,
and the state and year
the social security
number was issued
Nationwide Court Records Search......... $24.95 Pending and past
lawsuits, civil
judgments, foreclosures,
property and tax liens,
and unlawful detainers
Adoption and Reunion.................... $25.00-$125.00 Adoption and reunion
manual and registry,
search specialists to
assist in reuniting
clients with biological
family members and
friends
</TABLE>
Instant Searches. In December 1998, we began offering Internet-based
"Instant Searches," which include general individual locator, first name only
and national death record searches. To conduct an "Instant Search," the client
enters available information into appropriate fields on our Web site. Searches
are performed automatically and results are delivered via the Web site, often
in a matter of seconds or minutes. If a client's Instant Search is unsuccessful
or he desires additional information, the client can then request additional
more comprehensive search services which may include using a search specialist
to assist in completing the search request. Clients requesting more
comprehensive search services receive a credit for "Instant Searches" purchased
online. Clients can apply this credit toward the purchase of assisted searches
to complete their search request.
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Individual Locator. This service is targeted at individual, corporate and
professional clients interested in locating missing individuals such as long-
lost friends, family, former employees, or business contacts. Corporate and
professional organizations may also wish to locate a large number of members in
connection with class reunions, corporate gatherings or fundraising efforts. We
can search various databases and public records to find the person, with as
little as a person's name, date of birth, social security number or last known
address.
Individual Profile Reports. Individual or corporate clients can order a
public record search to verify information about a person and determine whether
there is any material information about a person's history that has not been
disclosed. This service provides a simple individual profile report at an
affordable, cost-effective price. Using this service, a client will receive
information about a person's previous addresses, lawsuits, judgments, UCC
filings, property ownership and corporate affiliations. We believe that the
individual profile report can provide valuable decision support to corporate
and professional clients.
Anti-Fraud Identification Verification. This service allows clients to
search for evidence of anyone using their social security number or assuming
their identity for fraudulent purposes. One of the major causes of credit card
fraud is the unlawful use of a person's social security number to gain credit.
The person whose identity was used typically suffers the expense of time and
money trying to remove the information from his or her credit reports. Our
service allows for early detection of this activity, avoiding time consuming
and costly resolution. The client is provided with addresses associated with
their social security number for the past 7-10 years, the telephone number,
date of birth, known aliases, and name variations of the social security
number, and the state and year the social security number was issued.
Nationwide Court Records Search. This service allows clients to search court
records across all 50 states to determine if an individual has filed any
lawsuits, had lawsuits filed against them, obtained a civil judgment, had a
civil judgment filed against them, had property or tax liens against them, had
any foreclosures, or had any unlawful detainers filed against them.
Adoption Reunion. This service allows clients to find their biological
family members. In July 1998, we began to emphasize and develop this service to
address the needs of clients who have been separated by adoption and would like
to find biological family members.
Services Under Development
Additional "Instant Searches." We intend to begin offering several
additional Internet-based "Instant Searches" on our Web site. For example, we
plan to offer "Instant" lawsuit searches, legal judgment searches, UCC filings
searches, real property searches, and unclaimed property searches. As with our
current "Instant Searches," clients would be able to directly access these
services online and receive results in a completely automated fashion via real-
time display on our Web site, often in as little as seconds or minutes.
Pre-Employment Background Screening. In the fourth quarter of 1999, we
intend to begin offering pre-employment background screening services to
corporate and professional clients. This service will allow corporate and
professional clients to conduct automated public record information searches in
connection with hiring and other employment decisions. These services will
incorporate our personal profile reports and a wide variety of criminal records
databases. We believe these services will provide valuable support to the
employment processes of corporate and professional clients. We expect to design
customized templates with appropriate fields on separate Web pages with secure
access for our corporate and professional clients.
Using US SEARCH Services
Using our services is quick, easy and inexpensive. Clients can access our
services through our user-friendly Web site, 1800USSEARCH.com, as well as our
toll free telephone number, 1-800 U.S. SEARCH. Our services are available 24
hours a day, seven days a week.
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1800USSEARCH.Com Web Site. Clients can access our Web site directly or can
click through the people search services of one of the following Internet
portals or Web sites: AOL.com, Netcenter.com, Excite.com, InfoSpace.com,
Lycos.com, Snap.com, Infoseek.com, HotBot.com, WhoWhere.com, Tripod.com,
Angelfire.com and MailCity.com. From our Web site, a client can choose from one
of our completely automated "Instant Searches" or from several different types
of assisted searches, including (1) locating missing persons; (2) individual
profile reports; (3) anti-fraud identification verification or (4) adoption
reunion. Once a search is selected, a client will be prompted to fill in
specific information, such as the full name, birth date, social security number
or last known address of the individual about whom the information is
requested. In certain cases, a search can be performed with as little as a
person's first name. Prior to processing the search request, the client must
complete an order form and provide us with the client's credit card
information.
In the case of our Internet-based "Instant Searches," the search request is
processed online, and the results are delivered in often as little as a few
seconds or minutes. In the case of our partially-automated searches, the
request is forwarded to one of our search specialists for fulfillment. Based on
the information provided, our search specialists search, aggregate, cross-
reference and verify data from multiple, dispersed public record information
sources in order to find the most useful results for the client. Our computer
system then assembles the results into a pre-formatted, user-friendly template.
After review, the completed report is delivered to the client by email,
facsimile or mail. It is our long-term strategy to offer an increasing number
of automated search services and expand the type and nature of information that
may be accessed online through our Web site.
US SEARCH Telephone Services. Through our toll-free telephone number, 1-800
U.S. SEARCH, we provide value-added search services for more complex and in-
depth search requests. Our operations and support center has trained search
specialists and customer service agents available 24 hours a day, seven days a
week. Our search specialists are available for search consultations, during
which they can perform searches, help clients define search criteria, refine
the search process to produce the most useful results for clients, and assist
clients in understanding the search results. If a client's online search via
our Web site is unsuccessful or he desires additional information, the client
can then call in to request additional, more comprehensive search services
which may include using a search specialist to assist in completing the search
request. In addition, we provide both pre-and post-sales support. We train our
search specialists and customer service representatives to offer solutions that
best address the clients' search request and public record information needs.
We believe that access to our toll-free telephone number increases the ease and
convenience of our services and allows for a greater range of available
services, delivery methods, and payment options.
Public Record Information Database Sources. We have direct and indirect
electronic access to a broad range of public record databases and other
information sources. In addition, we obtain information from public record
information suppliers such as CSRA/Ameridex, Metromail, Database Technologies,
Experian (formerly TRW Information Services), TransUnion, Choice Point
(formerly Equifax), Metronet, CBD Infotek, Vericheck and Information America.
These suppliers provide us with quick access to a wide variety of information
such as aliases, drivers license information, vehicle ownership, bankruptcies,
property ownership, past and current addresses, address profiles, current and
previous telephone numbers, judgments, deed transfer information, corporate
affiliation information, UCC filings, voter registration records, pilot
license, and aircraft and water vessel ownership. We intend to expand access to
additional databases, such as criminal record databases, in order to implement
our upcoming corporate and professional service offerings. We maintain open
accounts with our data providers and pay fixed fees per inquiry. While we
currently obtain over 50% of the information used in our services from
CSRA/Ameridex and Database Technologies, we do not believe that we are
dependent on any single third party source for any particular public record
information, because we believe multiple alternative sources of information are
available to us if our current sources become unavailable or unreliable for any
reason.
We continually evaluate our information database sources both to ensure that
we have access to the most timely, cost-effective, accurate and comprehensive
data, and to expand the number of automated searches
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offered to our clients. If we determine that a particular information database
source is inadequate or it otherwise becomes unavailable, we believe we can
switch to an alternative data source with some increase in cost and without
significant delay. From time to time we expect to evaluate potential
acquisitions or investments in in-house proprietary information databases to
complement our access to third party data providers.
Marketing and Brand Awareness
We believe that the growth and popularity of our individual and telephone-
based search services have been enhanced by a combination of Internet and
television advertising featuring our US SEARCH brand. We intend to strengthen
our US SEARCH brand through increased advertising, emphasis on our
1800USSEARCH.com Web site and promotion of additional public record
information and search services under the US SEARCH brand. We also intend to
combine an increasing level of key Internet advertising with strategically
placed television advertising to attract a great number of users to our Web
site. In the first quarter of 1999, we have received approximately 4.6 million
unique visits to our Web site, and over 220,000 telephone inquiries on our
toll free telephone number.
Our marketing strategy is to build our brand recognition and expand the
overall reach of our brand by:
. developing and expanding our advertising and marketing alliances with
major Internet search engines, portals, directories, and Web sites;
. expanding and increasing our national television and print
advertisements; and
. establishing a sales force and targeted marketing effort for corporate
and professional clients.
Marketing to Individual Clients
We believe by using multiple marketing channels and combining Internet and
television advertising we are able to cost-effectively maximize our brand
awareness and expand our overall reach to potential individual clients.
Internet Advertising. We believe that marketing alliances and advertising
agreements with Internet portals and high traffic Web sites have increased our
brand recognition and attracted clients. We generate considerable unique page
views from our various forms of Internet advertising, such as banners,
buttons, text links, and online white pages. We currently advertise on
Internet portals and directories such as AOL.com, Netcenter.com, Excite.com,
InfoSpace.com, The Lycos Network, Snap.com and The Go Network/Infoseek and
have placed our advertising on major Web sites such as HotBot.com,
WhoWhere.com, Tripod.com, Angelfire.com and MailCity.com. We believe that
these portals, directories, and Web sites reach a growing base of Internet
users who perform a free people search on the Internet but desire better
results or more information. We plan to increase the type and amount of
Internet advertising to enhance our brand recognition and attract clients. In
addition, we intend to develop Web-based partnerships, based on traffic
patterns, customer profiles, and related services in order to increase our
advertising presence on the Internet.
The following is a summary of some of the key features of our Internet
marketing alliances and advertising arrangements:
. InfoSpace.com. Under our marketing alliance with InfoSpace, InfoSpace
has agreed to fully integrate our content into its Web site and offer
our service as a co-branded service distributed on its network. Our
four-year agreement started in August of 1998 and provides that starting
in August of 1998, InfoSpace will not run advertising on its Web site
from any of our competitors, and we will not include the name of any
competitor of InfoSpace in our advertising. The Infospace.com agreement
provides us with a minimum guarantee of 72 million impressions per month
within the Infospace network and affiliated Web sites.
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. The Lycos Network (Lycos.com, WhoWhere.com, Tripod.com, Angelfire.com,
MailCity.com). Under our marketing alliance with Lycos, Lycos has agreed
to advertise our content on all of its affiliated sites in the form of
buttons, text links, banners, and keywords. The agreement is for a term
of one year starting in March of 1999, with a renewal for an additional
year, and provides that Lycos will not run advertising from any of our
competitors on any of the sites that Lycos owns. The Lycos agreement
provides us with a minimum guarantee of 500 million impressions for the
first year.
. Go Network/InfoSeek.com. Under our advertising arrangement with Go
Network/Infoseek.com, Go Network/Infoseek.com has agreed to advertise
our content on its People & Business Finder section in the form of an ad
banner which is linked to certain key words and topic-based matches.
This one-year agreement, ending on September of 1999, provides us with
approximately 14 million impressions per year, primarily tied to our
name appearing in the static page.
. Snap.com. Under our one-year advertising arrangement with Snap.com,
starting in March of 1999, Snap.com has agreed to advertise our content
on its White Page section in the form of a static "Midas" button and not
to sell a permanent "Midas" button to any of our competitors.
According to a February 1999 Nielsen/Net-Ratings report, 2.83% of all people
logged onto the Internet visited the 1800USSEARCH.com Web site. Nielsen/Net-
Ratings defines reach as the number of unique Web users viewing an item or Web
site one or more times, expressed as a percentage of the total population of
Web users.
Television Advertising. We intend to leverage our expertise in television
advertising to increase brand awareness and loyalty and attract Internet users
to our Web site. We will pursue multiple marketing and advertising channels,
combining strategically placed fee spots on popular television shows with
longer format commercials and other television advertising. We believe that our
television advertising has enabled us to increase the reach of our US SEARCH
brand and services.
Our principal form of television advertising includes 10-second promotional
fee spots on national television programs that prominently feature our toll-
free telephone number, 1-800 U.S. SEARCH, and Web site address,
1800USSEARCH.com. We are currently the network closed captioning sponsor for
CNBC and regularly appear on other cable networks including MSNBC, CNN and CNN
Headline News. We are also a fee spot sponsor of the two highest rated
syndicated television programs, Jeopardy and Wheel of Fortune. We advertise
weekly on Leeza, The Ricki Lake Show, Hollywood Squares, Judge Judy, The Dating
Game, Newlywed Game and Judge Joe Brown. We intend to expand our fee spot
advertising as opportunities arise. We have a relationship with PIC-TV, one of
the largest brokers of promotional fee spot advertising on television. By
monitoring telephone call volumes on the days that the spots aired, we estimate
the effectiveness of each advertising buy. We intend to reach a wider audience
and to attract more clients through the use of longer length commercials (15,
30 and 60 seconds) and longer format commercials which provide marketing
flexibility not available with the 10-second fee spots.
Marketing to Corporate and Professional Clients
We are establishing a corporate sales force and a team of research
specialists to promote and increase the marketing of our services to
prospective professional and corporate clients and to address the specific
needs of each corporate and professional client. We may also offer corporate
accounts with volume discounts to promote and market our services. In addition,
we intend to work closely with corporate and professional clients to better
understand their information and search needs, and we plan to leverage our
existing database information to create search services tailored to those
needs. For example, in the fourth quarter of 1999, we intend to begin offering
pre-employment background screening services to corporate and professional
clients, allowing these clients to conduct automated public record information
searches in connection with hiring and other employment decisions. In addition,
we expect to design customized Web pages with specific search criteria tailored
to the needs of each corporate and professional client. The customized Web page
would conveniently and securely provide online delivery of search results that
could then be more easily integrated with the client's own existing database or
other technology infrastructure.
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Technology and Infrastructure
Our Internet connectivity is provided by Worldsite, via a dedicated frame
relay connection. We currently have one Web server, housed at Worldsite. We
plan to move our Web server and Internet connectivity to Exodus in second
quarter of 1999. We will have 3 Web servers at Exodus after the move.
We plan to continue to upgrade and expand our server and networking
structure in an effort to improve accessibility, reliability, and the response
time of our Web site and increasing the efficiency and security of our
services. For example, we intend to increase the number of servers supporting
our Web site, and rapidly deploy high quality software and features into our
system to increasingly automate our search processes and improve communication
and response time. We also intend to continue to invest in our inbound
telecommunications infrastructure to allow for greater flexibility in managing
inbound call flows and gathering relevant trend information.
By investing in our technology and telecommunications infrastructures, we
believe we can improve client accessibility to our services and are able to
more effectively collect user information and respond to search requests. Any
failure to effectively integrate planned networking structure and tools into
our operations and any system or vendor failure that causes an interruption in
our service or decreases responsiveness of our Web site could result in less
traffic on our Web site and, if sustained or repeated, could impair our
reputation, brand and overall demand for our services.
Competition
The individual reference service industry is highly competitive and highly
fragmented. Currently, our primary competitors in the area of individual
locator searches include major telephone companies and other third parties who
publish free printed or electronic directories, private investigation firms and
a variety of other companies. Our primary competitors for individual profile
report search services include these companies, as well as LEXIS-NEXIS, a
division of Reed Elsevier Inc., The Dun & Bradstreet Corporation, Reuters
Limited, Avert, Inc., Choice Point, KnowX.com, a division of Information
America, The Kroll-O'Gara Company, Pinkerton and the Proudfoot Reports Division
of ASI Solutions, Inc. Many of these companies have greater financial and
marketing resources than we do and may have significant competitive advantages
through other lines of business and existing business relationships. We also
compete with online services and other Web site operators, as well as
traditional media such as television, radio and print for a share of
advertisers' total advertising space or programs. We do not presently consider
major Internet search directories or Web sites as competitors. In fact, we view
them as lead generators through their search directories and other services,
and we presently benefit from strategic advertising arrangements with several
of the major Internet portals and Web sites. However, there is no guarantee
that these Web sites, many of which have financial and other resources greater
than ours will not acquire businesses that compete with ours or introduce new
products and services in direct competition with us. More generally, our
competitors or potential competitors may develop services that are superior to
ours, are less expensive than ours or achieve greater market acceptance than
ours.
Government Regulation
In connection with a number of the services we provide, particularly
individual profile report search services used for various purposes, we may be
considered a "consumer reporting agency" as such term is used in the Fair
Credit Reporting Act, as amended ("FCRA"), and, therefore, may be required to
comply with the various consumer credit disclosure requirements of the FCRA.
Willful or negligent noncompliance could result in civil liability to the
subjects of reports. Also, the Americans with Disabilities Act of 1990 ("ADA")
contains pre-employment inquiry and confidentiality restrictions designed to
prevent discrimination against individuals with disabilities in the hiring
process. Although our business is not directly regulated by the ADA, the use by
our clients of information sold to them is regulated, both as to the type of
information and the timing of its use. Similarly, there are a number of states
which have laws similar to the FCRA, and some states which have laws more
restrictive than the ADA. Further, many state laws limit the type of
information which can be made available to the public. In addition, some state
laws may require us to be licensed in order to conduct business within those
states. Clients in those states can access our Web site, which may subject us
to the laws of those states. We may be subject to the laws of states in which
we have no contacts other than
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residents of the state ordering services through our Web site and our delivery
of reports to persons within the state. If we are determined to have violated
any of these federal or state laws, we could be subject to substantial civil
and/or criminal liability, which would have a material adverse effect on our
business and results of operations.
Many privacy and consumer advocates and federal regulators have become
increasingly concerned with the use of personal information, particularly
consumer credit reports (which we do not provide). However, we use the social
security numbers of individuals to search various databases, including those of
consumer credit reporting agencies. For example, we search the "header"
information contained in various consumer credit reporting agencies' databases
to find, among other items, current and previous addresses, social security
numbers used by an individual, or possible other names (such as maiden names,
married names, etc.). We also search these databases to determine if a
customer's social security number is being used by another person. Attempts
have been made and can be expected to continue to be made by various federal
regulators and organized groups to adopt new or additional federal and state
legislation to regulate the use of personal information. If federal and/or
state laws are amended or enacted in the future relating to access and use of
personal information, in particular, and privacy and civil rights, in general,
there could be a material adverse effect on our business and results of
operations.
Licensing Requirements
A number of states require consumer reporting agencies or business which
provide investigative services to obtain a license to conduct business within
those states. We may be deemed subject to this licensing requirement because of
our individual profile report search services. Clients in those states can
access our Web site, which may subject us to the laws of those states. We may
be subject to the laws of those states as a result of citizens of those states
purchasing our services through our Web site. We may not be able to obtain the
necessary licenses to do business in those states. In addition, failure to
comply with the privacy laws of those states could subject us to civil
litigation and liability to the subjects of the search reports issued to our
clients. Any violation of these laws or failure to obtain required licenses
could have a material adverse effect on our business and results of operations.
Risk of Civil Liability
We could be held liable to clients and/or to the subjects of individual
search reports prepared by us for inaccurate information or misuse of the
information. We maintain internal policies designed to help ensure that
background information retrieved by us is accurate and that we otherwise comply
with the provisions of the FCRA and similar state laws. We, however, do not
currently maintain liability insurance to cover claims by clients or the
subjects of reports. Based on our research, losses from these claims are either
uninsurable or the insurance that is available is so limited in coverage that
it is not economically practicable. We intend to continue our efforts to obtain
insurance coverage for these claims, but the insurance coverage may not be
available on terms acceptable to us. Claims of violations of the FCRA or
similar state laws may be made against us in the future or the claims, if made,
may not be successfully defended. Uninsured losses from these claims could
materially adversely impact our business, financial condition, results of
operations and prospects.
Trademarks
We are the owner of registered trademarks for "1-800 U.S. SEARCH" and
"Reuniting America Two People at a Time" and have applied for registered
trademarks for "US SEARCH," "The Public Record Portal," and the logo on the
front page of this prospectus. We have also registered several domain names,
including 1800USSEARCH.com and ussearchcorp.com.
Limited Protection of Proprietary Information and Procedures
Our ability to compete effectively depends on our ability to protect our
proprietary information, including our proprietary methodologies, research,
tools, software code and other information. We rely primarily on a
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combination of copyright, trademark and trade secret laws and confidentiality
procedures to protect our intellectual property rights. We request that our
consultants and employees sign confidentiality agreements and generally limit
access to and distribution of our research, methodologies and software codes.
Steps taken by us to protect our proprietary information may not be adequate to
prevent misappropriation. In addition, the laws of some countries do not
protect or enforce proprietary rights to the same extent as the laws of the
United States. The unauthorized use of our intellectual property could have a
material adverse effect on our business, and results of operations. We believe
that our systems and procedures and other proprietary rights do not infringe
upon the proprietary rights of third parties. Third parties may, however,
assert infringement claims against us in the future, and these claims may
result in lengthy and costly litigation, regardless of the merits of the
claims.
Employees
As of March 31, 1999, we had 100 full-time and 18 part-time employees. We
believe that our relations with our employees are good. None of our employees
are represented by a union.
Properties
Our headquarters are located in approximately 9,000 square feet of office
space in Beverly Hills, California. The lease terminates on February 14, 2001,
and we have an option to extend the lease for an additional three years. An
unrelated third party has subleased approximately 3,000 square feet through
February 14, 2001. We are currently considering acquiring more space or
possibly relocating to a larger facility that would better address our needs.
Legal Proceedings
We may from time to time become a party to various legal proceedings arising
in the ordinary course of business.
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MANAGEMENT
Executive Officers, Directors and Key Employees
The executive officers, directors and key employees of US SEARCH and their
ages as of March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
C. Nicholas Keating, Jr.... 57 President, Chief Executive Officer and Director
William G. Langley......... 49 Vice President--Chief Financial Officer
Robert J. Richards......... 45 Vice President--Operations
Meg Shea-Chiles............ 44 Vice President--Business Development
Alan S. Mazursky........... 40 Vice President--Finance
Nicholas Matzorkis......... 36 Founder
Peter Locke(2)............. 55 Co-Chairman and Director
Donald Kushner(1).......... 54 Co-Chairman and Director
Nicholas Rockefeller(2).... 42 Director
Russell I. Pillar(2)....... 33 Director
Harry B. Chandler(1)....... 45 Director
Alan C. Mendelson(1)....... 51 Director and Secretary
</TABLE>
- ----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee
C. Nicholas Keating, Jr. has served as our President, Chief Executive
Officer and as one of our directors since February 1999. From August 1993 to
February 1999, Mr. Keating has served as an independent business advisor to a
number of companies principally in the networking, software, semiconductor and
imaging industries. From May 1987 to August 1993, Mr. Keating was Vice
President of Network Equipment Technologies, Inc., a wide-area networking
company. Mr. Keating currently serves on the Board of Directors of MCMS, Inc.,
a leading advanced electronics manufacturer serving original equipment
manufacturers, and LIC Energy, a European software simulation systems company
serving the energy industry. Mr. Keating holds a B.A. and a M.A. from American
University and is a former Fulbright Scholar.
William G. Langley has served as our Chief Financial Officer since March
1999. From September 1992 to March 1999, Mr. Langley served as Chief Financial
Officer of FEI Company, a company that designs, manufactures and markets
charged particle beam products, and was promoted in October 1994 to the
additional positions of Chief Operating Officer, President and director. Mr.
Langley was Vice President of Acquisitions/Finance for Ticonderoga Partners
from July 1990 to September 1992 as well as a Vice President of Capital
Preservation and Restructuring for Shearson Lehman Hutton from June 1988 to
July 1990. From May 1984 to June 1988, Mr. Langley served as Vice President--
Asset Finance at Kidder, Peabody & Company. He is a member of the Oregon state
bar and a certified public accountant. Mr. Langley holds an LL.M. from New York
University School of Law, a J.D. from Northwestern School of Law of Lewis &
Clark College and a B.A. from Albertson College of Idaho.
Robert J. Richards has served as our Vice President, Operations since April
1999. From November 1996 to April 1999, Mr. Richards served as Vice President,
Operations at E-Net Corporation, overseeing certain aspects of research and
development, technical support, technical writing and MIS activities. From
October 1995 to September 1996, Mr. Richards served as Vice President,
Operations at GEMM Corporation and directed all operations activities including
sales, marketing, administration research and development. Mr. Richards joined
QuickResponse Services, Inc. in February 1988 serving in various roles, and
served as its Vice President, Research and Development from July 1994 to
October 1995. From June 1983 to February 1988, Mr. Richards served as Director,
Systems Technology and then as Vice President, Operations at the Pacific Stock
Exchange. Mr. Richards holds a B.A. from Moravian College.
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Meg Shea-Chiles has served as our Vice President, Business Development since
May 1999. From January 1998 to April 1999, Ms. Shea-Chiles served as a Global
Alliance Executive at IBM, where she also served as Director of Reengineering
and Information Technology from March 1996 to December 1998, and Program
Director of Business Development from May 1995 to March 1996. From December
1994 to May 1995, Ms. Shea-Chiles served as Vice President, Product Design for
NBS Imaging Systems, Inc., a systems integrator and producer of identification
and verification cards. From March 1989 to December 1994, Ms. Shea-Chiles
served in various roles at Network Equipment Technologies, Inc., a manufacturer
of enterprise network equipment, and became its Senior Director of Strategic
Partnership Programs in October 1991. Ms. Shea-Chiles holds a B.S., magna cum
laude, from Boston College and a M.S. from Southern Methodist University.
Alan S. Mazursky has served as our Vice President, Finance since February
1999. From May 1998 to February 1999, Mr. Mazursky provided services to us as
part of his duties as a consultant to, and then as an employee of, Kushner-
Locke. From July 1996 to July 1998, Mr. Mazursky served as an independent
financial consultant. From June 1988 to June 1996, Mr. Mazursky was Chief
Financial Officer of Hard Rock Cafe America, the owner, operator and franchisor
of Hard Rock Cafe restaurants in the western United States and certain
international territories. From September 1984 to June 1988, Mr. Mazursky was
Corporate Controller of The Federated Group, a 68-store retail consumer
electronics chain, and from September 1980 to August 1984, he was an audit
supervisor for Ernst & Young LLP. Mr. Mazursky is a certified public accountant
and holds a B.S. from the University of California Los Angeles.
Nicholas Matzorkis, a co-founder, serves as our Senior Strategist. From our
inception in November 1994 to September 1998, Mr. Matzorkis served as our
President and one of our directors. From October 1991 to March 1994, Mr.
Matzorkis was founder and President of U.S. Bell Long Distance, an aggregator
and reseller of telecommunications services. In addition, from April 1995 to
December 1996, Mr. Matzorkis consulted with companies in the entertainment
industry on Web site development and has served as a promoter of a variety of
music and entertainment ventures. Mr. Matzorkis attended Kent State University.
In 1990, Mr. Matzorkis plead guilty to a fourth degree felony as a result of
providing false identification information in connection with the purchase of
an automobile, was given a suspended sentence and ordered to serve 200 hours of
community service. In 1997, Mr. Matzorkis was detained for failing to complete
his community service, which he subsequently completed. Mr. Matzorkis no longer
serves as an officer or director of US SEARCH and placed all of his shares in
an irrevocable trust for the benefit his family and does not have discretionary
authority over the disposition of these shares.
Peter Locke has served as Co-Chairman and one of our directors since
November 1997. From September 1998 to February 1999, Mr. Locke served as our
President. Mr. Locke co-founded Kushner-Locke, a feature film and television
production and distribution company, with Donald Kushner in 1983 and currently
serves as its Co-Chairman and Co-Chief Executive Officer. Kushner-Locke
currently owns a controlling interest in US SEARCH and is one of the selling
stockholders. Mr. Locke has served as executive producer on substantially all
of Kushner-Locke's programming since its inception and has produced over 1,000
hours of film and television programming. Prior to 1983, Mr. Locke produced
several prime-time television programs and independent feature films. Mr. Locke
holds a B.A. from Syracuse University.
Donald Kushner has served as Co-Chairman and one of our directors since
November 1997. Mr. Kushner co-founded Kushner-Locke with Peter Locke in 1983
and currently serves as its Co-Chairman, Co-Chief Executive Officer and
Secretary. Mr. Kushner has served as executive producer on substantially all of
Kushner-Locke's programming since its inception. Mr. Kushner was the producer
of Tron, a 1982 Walt Disney theatrical film which was nominated for two Academy
Awards. Mr. Kushner holds a B.A. from Syracuse University and a J.D. from
Boston University, and is a member of the Massachusetts state bar.
Nicholas Rockefeller has served as one of our directors since February 1999.
Mr. Rockefeller is an attorney with the law firm of Troop Meisinger Steuber
Pasich Reddick & Tobey, LLP, and has been with the firm since June 1997, prior
to which he was engaged in the private practice of law for ten years.
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Mr. Rockefeller also serves as a Managing Partner of the Rockvest Development
Group and its affiliate, the Rockefeller International Fund, which supervises
investments in publicly traded securities and in private enterprises and
maintains an active venture capital portfolio. Mr. Rockefeller is also Chairman
of Rockefeller Asia, a financial services company, and is a Managing Director
of Trenwith Holdings, a merchant bank. Mr. Rockefeller is a member of the
California and Washington, D.C. bars, and holds a J.D. from Yale Law School.
Mr. Rockefeller was selected as a nominee to the Board of Directors pursuant to
a stockholders agreement between Mr. Matzorkis and Kushner-Locke. See "Certain
Relationships and Related Transactions--Other Agreements".
Russell I. Pillar has served as one of our directors since January 1999. Mr.
Pillar has served as President and Chief Executive Officer of Virgin
Entertainment Group, Inc., the North American operation of Richard Branson's
Virgin Group of companies, since November 1998. Since October 1991 he also has
served as Managing Partner of Critical Mass, a technology incubator/venture
capital firm. He joined the Board of Directors of Prodigy Communications
Corporation in October 1996 as part of the investor group that purchased the
company from IBM and Sears, and led Prodigy Internet's turnaround as its
President and Chief Executive Officer from September 1997 to August 1998. From
December 1993 to October 1996, he led the turnaround of Precision Systems,
Inc., a publicly traded international telecommunications software provider,
serving as its President, Chief Executive Officer and as one of its directors.
Mr. Pillar also serves on the Board of Directors of Prodigy Communications
Corporation and Telescan, Inc., as well as a number of private information
technology companies. Mr. Pillar holds an A.B., Phi Beta Kappa, cum laude, from
Brown University.
Harry B. Chandler has served as one of our directors since April 1999. Mr.
Chandler has served as the Executive Vice President of Goto.com, a Pasadena
company since March 1999. From April 1994 until March 1999, Mr. Chandler served
as Director of New Business Development at the Los Angeles Times, where he was
responsible for investments, acquisitions and operations of much of its
Internet activities. From 1991 to 1994, Mr. Chandler served as founder and
President of Dream City Films. Mr. Chandler holds a B.A. from Stanford
University and attended UCLA Graduate School of Film/TV and Anderson School of
Business.
Alan C. Mendelson has served as our Secretary and one of our directors since
February 1999. Mr. Mendelson is a senior partner of Cooley Godward llp and has
been with the firm since 1973, where he currently heads the companies and the
life sciences groups and is a member of its Management Committee. He served as
Managing Partner of the firm's Palo Alto office from May 1990 to March 1995 and
November 1996 to September 1997. Mr. Mendelson served as Secretary and Acting
General Counsel of Amgen, Inc., from April 1990 to April 1991 and as Acting
General Counsel of Cadence Design Systems, Inc. from November 1995 to June
1996. Mr. Mendelson serves as the Secretary of a number of public companies and
is a member of the Board of Directors of CoCensys, Inc. and Isis
Pharmaceuticals, Inc. Mr. Mendelson holds a J.D., cum laude, from Harvard
University Law School and an A.B., Phi Beta Kappa, from the University of
California, Berkeley.
Board Composition
Upon the closing of the offering, there will be seven directors. In
accordance with the terms of our certificate of incorporation, the terms of the
office of the Board of Directors will be divided into three classes, with each
class holding office for staggered three year terms: Class I directors' terms
will expire at the annual meeting of stockholders to be held in 1999, Class II
directors' terms will expire at the annual meeting of stockholders to be held
in 2000, and Class III directors' terms will expire at the annual meeting of
stockholders to be held in 2001. The Class I directors are Messrs. Chandler and
Rockefeller, the Class II directors are Messrs. Kushner and Pillar and the
Class III directors are Messrs. Locke, Keating and Mendelson. At each annual
meeting of stockholders after the initial classification, the successors to
directors whose term will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly
possible, each class will consist of one-third of the directors. This
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classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of US SEARCH. Directors may be
removed by the affirmative vote of the holders of a majority of the common
stock.
Board Committees
Audit Committee. The audit committee is responsible for, among other things,
making recommendations concerning the engagement of our independent public
accountants, reviewing with the independent public accountants the plans and
results of the audit engagement, approving professional services provided by
the independent public accountants, reviewing the independence of the
independent public accountants, considering the range of audit and non-audit
fees and reviewing the adequacy of our internal accounting controls. Since
March 1999, the audit committee has consisted of Messrs. Kushner, Chandler and
Mendelson.
Compensation Committee. The compensation committee is responsible for
determining compensation for our directors, officers, employees and consultants
and administering the 1998 Stock Incentive Plan. Since March 1999, the
compensation committee has consisted of Messrs. Pillar, Locke and Rockefeller.
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are Messrs. Pillar, Locke and
Rockefeller. Two of the members of our compensation committee, Messrs. Pillar
and Rockefeller, since the formation of US SEARCH are not currently and have
never been, an officer or employee of US SEARCH. The third member of our
compensation committee, Mr. Locke, served as our President from September 1998
to February 1999. Prior to the formation of the compensation committee, all
decisions regarding compensation for directors, officers, employees and
consultants and administration of the 1998 Stock Incentive Plan were made
solely by the board of directors.
Director Compensation
Directors who are also executive officers of US SEARCH do not receive any
additional compensation for serving as members of the board of directors or any
committee thereof. Non-employee directors are expected to receive a cash
stipend payable quarterly for serving on the Board of Directors and any
committees thereof, as well as an initial option to purchase 39 shares of
common stock and an annual option to purchase 10 shares of common stock under
our 1999 Non-Employee Directors' Stock Option Plan. See "1999 Non-Employee
Directors' Stock Option Plan."
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Executive Compensation
The following table sets forth information for the year ended December 31,
1998, regarding the compensation of the two individuals who served as our Chief
Executive Officer. There were no other executive officers of US SEARCH whose
salary and bonus for that year were in excess of $100,000 on an annualized
basis (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation Long-Term
-------------- Compensation All Other
Name and Principal Position Salary Bonus Awards Compensation
- --------------------------- -------- ----- ------------ ------------ ---
<S> <C> <C> <C> <C> <C>
Nicholas Matzorkis(1) .. $127,460 -- -- $340,400(3)
Founder and Former
President
Peter Locke(2).......... -- -- -- --
Director, Former Presi-
dent
</TABLE>
- ----------
(1) Mr. Matzorkis, a co-founder of US SEARCH, was the President from our
inception in November 1994 through September 14, 1998. Mr. Matzorkis is no
longer an officer of US SEARCH. Mr. Matzorkis entered into a three year
employment agreement with US SEARCH as of November 21, 1997, as amended and
restated as of September 14, 1998, which provides for an annual base
compensation of $150,000, plus a $25,000 per year increase in base
compensation. See "--Employment Agreements."
(2) Mr. Locke, a director of US SEARCH, was the President from September 1998
through February 1999. Compensation for his services as President was paid
as part of the amounts billed to US SEARCH pursuant to the Administrative
Services Agreement between US SEARCH and Kushner-Locke dated July 1, 1998.
See "Certain Relationships and Related Transactions."
(3) Includes (a) the assumption by the Company of Mr. Matzorkis' obligations
under a $296,000 note in connection with the September 14, 1998 negotiation
of the three year employment agreement and reimbursement to Mr. Matzorkis
of $7,200 in interest payments he previously made under this note, (b)
$10,000 paid to Mr. Matzorkis for the rights to music used in certain of
the Company's advertisements, and (c) $27,200 for reimbursement of legal
expenses and automobile allowance.
Option Grants In Last Fiscal Year
There were no stock option grants to the Named Executive Officers during the
fiscal year ended December 31, 1998.
Aggregate Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
There were no option exercises by the Named Executive Officers during the
fiscal year ended December 31, 1998. There were no options held by the Named
Executive Officers at December 31, 1998.
Employment Agreements
C. Nicholas Keating, Jr. entered into an at-will employment agreement with
US SEARCH effective February 1999 for the position of President and Chief
Executive Officer. The term of the employment agreement is one year, and we
have the option to extend the agreement for an additional two year term. The
employment agreement provides for annual base compensation of $250,000, in
addition to stock options to purchase 628 shares of common stock at an exercise
price equal to $2,807.02 per share, which options will vest one-third upon date
of grant, one-third on the first anniversary of the date of grant and one-third
on the second anniversary of the date of grant. The options also vest
immediately in the event Mr. Keating is terminated without cause or in the
event of a change in control of US SEARCH in connection with a sale of
substantially
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all of our assets or a merger. Mr. Keating's employment agreement also provides
for an annual bonus, monthly housing allowance and severance package in the
event he is terminated without cause.
William G. Langley entered into an at-will employment agreement with US
SEARCH effective March 1999 for the position of Vice President, Chief Financial
Officer. Mr. Langley may terminate his employment with US SEARCH at any time
and for any reason, and US SEARCH can terminate his employment at any time and
for any reasons, with or without cause or notice. The employment agreement
provides for annual base compensation of $170,000, in addition to stock options
to purchase 194 shares of common stock at an exercise price equal to $5,161.29
per share, which options will vest one-fourth on each of the four anniversaries
of the date of grant. Mr. Langley's employment agreement also provides for an
annual bonus and severance package in the event he is terminated without cause.
Robert J. Richards entered into an at-will employment agreement with US
SEARCH effective April 1999 for the position of Vice President, Operations. Mr.
Richards may terminate his employment with US SEARCH at any time and for any
reason, and US SEARCH can terminate his employment at any time and for any
reasons, with or without cause or notice. The employment agreement provides for
annual base compensation of $160,000, in addition to stock options to purchase
194 shares of common stock at an exercise price equal to $4,032.80 per share,
which options will vest one-fourth on each of the four anniversaries of the
date of grant. Mr. Richards' employment agreement also provides for an annual
bonus and severance package in the event he is terminated without cause.
Meg Shea-Chiles entered into an at-will employment agreement with US SEARCH
effective May 1999 for the position of Vice President, Business Development.
Ms. Shea-Chiles may terminate her employment with US SEARCH at any time and for
any reason, and US SEARCH can terminate her employment at any time and for any
reason, with or without cause or notice. The employment agreement provides for
base compensation of $150,000, in addition to stock options to purchase 194
shares of common stock at an exercise price equal to $4,032.80 per share, which
options will vest one-fourth on each of the four anniversaries of the date of
grant. Ms. Shea-Chiles's employment agreement also provides for an annual bonus
and severance package in the event she is terminated without cause.
Nicholas Matzorkis entered into an at-will employment agreement with US
SEARCH in November 1997, as amended and restated effective September 1998. The
term of the employment agreement is three years, commencing in September 1998,
provided that US SEARCH may terminate his employment at any time for cause. The
employment agreement provides for base compensation of $150,000 per year for
the first year, with annual increases of $25,000, until completion of this
offering, at which time the base compensation will be increased to $175,000,
with the same annual increases. Mr. Matzorkis' title is "Founder," his duties
include the position of Senior Strategist, and he is no longer an executive
officer. In addition, we will pay the premiums on a $1.0 million life insurance
policy on the life of Mr. Matzorkis, for the benefit of Mr. Matzorkis'
designated beneficiaries.
Stock Plans
1998 Stock Incentive Plan.
On July 23, 1998 the Board adopted, and the stockholders of US SEARCH
approved, the 1998 Stock Incentive Plan. On February 26, 1999, the Board
adopted, and the stockholders of US SEARCH subsequently approved, an amendment
and restatement of the 1998 Stock Incentive Plan. A total of 2,868 shares of
common stock have been reserved for issuance under the 1998 Stock Incentive
Plan. The 1998 Incentive Plan provides for grants of incentive stock options
that qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), to employees (including officers and employee directors) of US
SEARCH or any affiliate, and nonstatutory stock options, stock appreciation
rights, restricted stock awards and stock bonuses ("Performance Share Awards")
to employees (including officers and employee directors), directors and
independent contractors of, and consultants to, US SEARCH or a subsidiary. The
1998 Stock Incentive Plan is
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administered by the Board or a committee appointed by the Board (references
herein to the Board shall include any such committee). It is intended that the
1998 Stock Incentive Plan will be administered by the Compensation Committee.
The Board has the authority to determine to whom and the dates on which awards
are to be granted, what types of awards are to be granted, and the terms of
each award including the exercise price, number of shares subject to the award,
and the exercisability thereof.
The term of options granted under the 1998 Stock Incentive Plan may not
exceed ten years. The exercise price of options granted under the 1998 Stock
Incentive Plan is determined by the Board but, in the case of an incentive
stock option, cannot be less than 100% of the fair market value of the common
stock on the date of grant. Options granted under the 1998 Stock Incentive Plan
vest at the rate specified in the option agreement. Incentive stock options
granted prior to this offering may allow for the payment by US SEARCH of a tax
offset bonus in order to offset the impact on the option holder of additional
taxes owed as a result of a disqualifying disposition of common stock of US
SEARCH issued upon the exercise of the options.
An optionee whose relationship with US SEARCH or any of its subsidiaries
ceases for any reason (other than by retirement, death or permanent and total
disability) may exercise vested options during the three-month period following
this cessation, unless the options terminate or expire sooner by its terms.
Vested options may be exercised for up to twelve months after an optionee's
relationship with US SEARCH, or an affiliate, ceases due to retirement or
disability and for up to eighteen months after the relationship ceases due to
death (unless the options terminate or expire sooner by their terms). Vested
incentive stock options may be exercised only during the three-month period
following an employee's retirement from US SEARCH or its subsidiaries.
No incentive stock option may be granted to any person who, at the time of
the grant, owns, or is deemed to own, stock possessing more than ten percent
(10%) of the total combined voting power of US SEARCH or any affiliate of US
SEARCH, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant and the term of
the option does not exceed five (5) years from the date of grant. In addition,
the aggregate fair market value, determined at the time of grant, of the shares
of common stock with respect to which incentive stock options are exercisable
for the first time by an optionee during any calendar year (under the 1998
Stock Incentive Plan and all other stock plans of US SEARCH and its affiliates)
may not exceed $100,000. Any options, or portions thereof, which exceed this
limit are treated as nonstatutory options.
No award granted under the plan may be transferred by the optionee other
than by will or the laws of descent or distribution except that shares
underlying the awards may be transferred if all applicable restrictions have
lapsed. During the lifetime of the holder of any award, the award may be
exercised only by the holder or the holder's personal representative in the
event of the holder's disability or incompetence.
Shares of common stock subject to awards that have lapsed or terminated,
without having been exercised in full, may again become available for grant
pursuant to awards under the 1998 Stock Incentive Plan.
Stock Appreciation Rights granted under the Plan in connection with stock
options or other awards typically will provide for payments to the holder based
upon increases in the price of the common stock over the exercise price of the
related option or other awards. Restricted stock may be sold to participants at
various prices and made subject to the restrictions as may be determined by the
Compensation Committee. Purchasers of restricted stock will have voting rights
and will receive dividends prior to the time when the restrictions lapse.
Upon a Change in Control of US SEARCH, all outstanding options under the
1998 Stock Incentive Plan shall be assumed by the surviving entity or the
surviving entity shall substitute similar options for the outstanding options.
If the surviving entity determines not to assume the outstanding options or
substitute similar options therefor, then with respect to persons whose service
with US SEARCH or an affiliate has not terminated prior to the Change in
Control, the vesting of the options shall accelerate and the options shall
terminate if not exercised prior to the Change in Control. "Change in Control"
means a sale of all or substantially all of the assets of US SEARCH, a merger
or consolidation in which US SEARCH is not the
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surviving corporation or a reverse merger in which US SEARCH is the surviving
corporation but the shares of our common stock outstanding immediately before
the merger are converted by virtue of the merger into other property.
As of March 31, 1999, no shares had been issued upon the exercise of options
granted under the 1998 Stock Incentive Plan and options to purchase 1,415
shares were outstanding with 1,453 shares reserved for future grants or
purchases under the 1998 Stock Incentive Plan. The 1998 Stock Incentive Plan
will terminate on June 1, 2008 unless terminated sooner by the Board.
1999 Non-Employee Directors' Stock Option Plan
On February 26, 1999, the Board adopted, and the stockholders of US SEARCH
subsequently approved, the 1999 Non-Employee Directors' Stock Option Plan. A
total of 350 shares of common stock have been reserved for issuance under the
1999 Non-Employee Directors' Stock Option Plan. Under the 1999 Non-Employee
Directors' Stock Option Plan, each non-employee director was automatically
granted an option to purchase 39 shares of our common stock at an exercise
price of $4,032.80 per share on February 26, 1999, and each new non-employee
director who is subsequently elected or appointed for the first time will
automatically be granted an option to purchase 39 shares of common stock of US
SEARCH ("Initial Grants").
On the day prior to each annual meeting of our stockholders, commencing with
the annual meeting in 2000, each non-employee director will be granted an
option to purchase 10 shares of common stock of US SEARCH; provided, however,
that if the person has not been serving as a non-employee director for the
entire period since the preceding annual meeting of our stockholders, then the
number of shares of common stock subject to the option shall be reduced pro
rata for each full quarter prior to the date of grant during which the person
did not serve as a non-employee director ("Annual Grants").
Options granted under the 1999 Non-Employee Directors' Stock Option Plan are
granted at 100% of the fair market value of the common stock of US SEARCH on
the date of grant. Options granted under the 1999 Non-Employee Directors' Stock
Option Plan have a ten-year term and vest as follows: Initial Grants vest as to
1/3rd of the shares on each anniversary of the date of grant; Annual Grants
vest as to 1/12th of the shares each month for 12 months after the date of the
grant. In the event the services of a holder of an option under the 1999 Non-
Employee Director's Stock Option Plan are terminated, the holder may exercise
his or her options that have vested as of the termination date only within the
period of time ending on the earlier of (1) the date 12 months (18 months if
the termination is as a result of the option holder's death) following the
termination of the holder's services or (2) the expiration of the term of the
option as set forth in the option agreement. All options granted under the 1999
Non-Employee Directors' Stock Option Plan are non-transferrable.
Upon a Change in Control of US SEARCH, all outstanding options under the
1999 Non-Employee Directors' Stock Option Plan shall be assumed by the
surviving entity or the surviving entity shall substitute similar options for
the outstanding options. If the surviving entity determines not to assume the
outstanding options or substitute similar options therefor, then with respect
to persons whose service with US SEARCH or an affiliate has not terminated
prior to the Change in Control, the vesting of the options shall accelerate and
the options terminated if not exercised prior to the Change in Control. "Change
in Control" means a sale of all or substantially all of the assets of US
SEARCH, a merger or consolidation in which US SEARCH is not the surviving
corporation or a reverse merger in which US SEARCH is the surviving corporation
but the shares of our common stock outstanding immediately before the merger
are converted by virtue of the merger into other property.
As of March 31, 1999 no shares had been issued upon the exercise of options
granted under the 1999 Non-Employee Directors' Stock Option Plan and options to
purchase 195 shares were outstanding with 155 shares reserved for future grants
or purchases under this plan.
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Limitation of Liability and Indemnification Matters
As permitted by Section 145 of the Delaware General Corporation Law, the
bylaws of US SEARCH provide that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law;
. we may, in our discretion, indemnify other employees and agents as set
forth in the Delaware General Corporation Law;
. to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding (subject to
certain exceptions);
. the rights conferred in the bylaws are not exclusive;
. we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents;
. to the fullest extent permitted by the Delaware General Corporation Law,
we may purchase insurance on behalf of any person required or permitted
to be indemnified; and
. we may not retroactively amend the bylaws provisions relating to
indemnity.
We intend to enter into agreements to indemnify our officers and directors.
A copy of the form of the indemnity agreement has been filed as an exhibit to
the registration statement.
US SEARCH has obtained officer and director liability insurance with respect
to liabilities arising out of certain matters, including matters arising under
the Securities Act. In addition, our certificate of incorporation provides that
our directors will not be liable for monetary damages for breach of their
fiduciary duty as directors to the fullest extent permitted by the Delaware
General Corporation Law. This provision in our certificate of incorporation
does not eliminate their fiduciary duty and in appropriate circumstances,
equitable remedies such as an injunction or other forms of non-monetary relief
would remain available under Delaware General Corporation Law. This provision
does not affect a director's responsibilities under any other laws such as the
federal securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of US SEARCH as to which indemnification is being sought nor are we aware of
any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisition of Common Stock
Peter Locke, one of the directors and former President of US SEARCH,
acquired an option to purchase 45% of its outstanding common stock, from Robert
L. Rich, then a co-founder, CEO, one of its directors, and stockholder,
pursuant to an Option Agreement (the "Robert Rich Option") dated as of August
1997. In November 1997, Mr. Locke exercised the Robert Rich Option in exchange
for Mr. Locke's entering into an indemnification agreement whereby he agreed to
personally indemnify Mr. Rich against certain liabilities to which Mr. Rich may
have been subject in connection with US SEARCH (the "Indemnified Liabilities").
The indemnification obligation was limited to an aggregate of $335,000. Mr.
Locke subsequently transferred the shares to Dayton Way Pictures V, Inc., a
California corporation and wholly-owned subsidiary of Kushner-Locke ("Dayton
Way"), in exchange for indemnification by Dayton Way from the Indemnified
Liabilities.
In October 1997, Kushner-Locke entered into an agreement to purchase 35% of
the outstanding common stock, from Nicholas Matzorkis in exchange for Kushner-
Locke's agreement to indemnify Mr. Matzorkis against certain liabilities to
which Mr. Matzorkis may have been subject in connection with the Indemnified
Liabilities. The indemnification obligation was limited to an aggregate of
approximately $317,000 and included substantially the same liabilities as the
Indemnified Liabilities under the Robert Rich Option. In November 1997,
Kushner-Locke assigned its rights under this agreement to Dayton Way, and
Dayton Way acquired the shares, bringing its total ownership to 80% of the
outstanding common stock. Dayton also agreed to indemnify Mr. Matzorkis against
the Indemnified Liabilities.
In connection with these transactions, in November 1997, Dayton Way granted
to Kushner-Locke an option to purchase the 80% of outstanding common stock of
US SEARCH for $100 and Kushner-Locke's agreement to indemnify both Dayton Way
and Mr. Locke against the Indemnified Liabilities not to exceed $670,000.
Kushner-Locke exercised this option in January 1998.
In connection with Robert Rich's November 1997 sale of shares of common
stock to Peter Locke, Mr. Rich resigned as an officer and director of US
SEARCH, and US SEARCH entered into a 24 month consulting agreement with Mr.
Rich providing for payment of $2,000 per month. Mr. Rich is obligated to
provide ten hours of consulting services to US SEARCH per week.
Stockholder Loans
US SEARCH loaned approximately $41,000 in 1995, $176,000 in 1996 and $32,000
in 1997, to Nicholas Matzorkis, then its co-founder, President, and
stockholder. US SEARCH received repayments of approximately $5,000 in 1995 and
$3,000 in 1996 from Mr. Matzorkis. In June 1997, Mr. Matzorkis personally
assumed US SEARCH's obligations under a $296,000 promissory note payable to
Keith Davis (the "Davis Loan"). In consideration for Matzorkis' assumption of
US SEARCH's obligations under the Davis Loan, the prior outstanding amounts
loaned to Mr. Matzorkis were repaid in full and an amount payable to Mr.
Matzorkis was established to the extent the assumption of the Davis Loan
exceeded loans made to Mr. Matzorkis. In September 1998, in connection with US
SEARCH's amended and restated employment agreement with Mr. Matzorkis, US
SEARCH agreed to assume Mr. Matzorkis' obligations on the Davis Loan. See
"Management--Employment Agreements." As of December 31, 1998, US SEARCH owed
Mr. Matzorkis approximately $42,000 bearing no interest and payable in 38 equal
monthly installments of approximately $1,100.
US SEARCH borrowed approximately $70,000 in 1995, $143,000 in 1996 and
$22,000 in 1997, from Robert Rich, then its Chief Executive Officer. US SEARCH
repaid approximately $24,000 in 1995, $108,000 in 1996, $32,000 in 1997 and
$3,000 in 1998. These amounts are non-interest bearing. As of December 31,
1998, US SEARCH owed Mr. Rich approximately $68,000 payable in monthly
installments beginning in January 1999.
John Rich, the father of Robert Rich, then its Chief Executive Officer, lent
us $50,000 in December 1996 and $50,000 in May 1997, bearing interest at 20%
per annum, payable in six monthly installments of $10,000
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each, including interest. US SEARCH executed promissory notes to John Rich,
personally guaranteed by both Robert Rich and Nicholas Matzorkis. US SEARCH
subsequently defaulted in its obligations under these notes. On January 2,
1998, the notes were restructured providing for the payment by US SEARCH of
$120,000, including all past and future interest, in 36 equal monthly
installments of approximately $3,333 each, beginning on January 15, 1998,
guaranteed by Kushner-Locke. As of December 31, 1998, US SEARCH owed John Rich
approximately $70,000.
From May 1997 to October 1997, Peter Locke personally advanced to US SEARCH
amounts totalling over time approximately $397,000, bearing interest at 10% per
annum, payable upon demand. These advances were subsequently repaid in full. In
addition, US SEARCH paid approximately $40,000 in consulting fees and interest
to Mr. Locke for services rendered through December 31, 1997.
In January 1999, US SEARCH issued Convertible Subordinated Notes (the
"Convertible Notes") to Kushner-Locke. Under the Convertible Notes, Kushner-
Locke agreed to provide US SEARCH advances of up to $5.5 million. Any advances
under the Convertible Notes bearing interest at a rate of 10% per annum. The
entire outstanding principal amount and any accrued interest under the
Convertible Notes will convert, at the option of Kushner-Locke, into shares of
US SEARCH's common stock at a rate of approximately one share of common stock
for each $2,000 owed under the Notes. On the closing of this offering, the
entire amount US SEARCH owes Kushner-Locke under the Notes will automatically
convert into shares of its common stock on the same basis as described in the
preceding sentence. The shares of common stock issued upon conversion of the
Convertible Notes have registration rights. See "Description of Capital Stock--
Registration Rights." The Convertible Notes includes a 10% origination fee
payable to Kushner-Locke based upon the total amount borrowed under this
Convertible Notes. The Convertible Notes and the amounts owed under them are
subordinated in certain cases, including subordinated to any amounts owed to
banks and financial institutions.
Warrants
In September 1998, US SEARCH granted to Kushner-Locke a warrant to purchase
up to 500 shares of common stock at an aggregate exercise price of
approximately $5.00 as compensation for (1) advances of capital to US SEARCH by
Kushner-Locke, (2) administrative services provided by Kushner-Locke and
(3) provision of certain guarantees. These warrants are exercisable at any time
on or before September 14, 2008. The warrants will be exercised prior to the
closing of this offering. The warrant provides for piggyback registration
rights and a one-time demand registration right. See "Description of Capital
Stock--Registration Rights."
In January 1999, in connection with the Convertible Notes, US SEARCH granted
to Kushner-Locke a warrant to purchase up to 1,000 shares of common stock. One-
half of the shares granted were at an exercise price of $2,500 per share, and
the remaining half of the shares were at an exercise price of $3,000 per share.
The warrant is exercisable at any time on or before January 7, 2009. The
warrant will be exercised prior to the closing of this offering. The warrant
provides for piggyback registration rights and a one-time demand registration
right. See "Description of Capital Stock--Registration Rights."
Guarantees
In February 1998, US SEARCH entered into a revolving line of credit with
Comerica Bank. Kushner-Locke, which owned 80% of the outstanding capital stock
of US SEARCH at that time, guaranteed its obligations under the line of credit.
US SEARCH repaid all the principal and interest amounts outstanding under the
line of credit in March 1999.
In May 1998, Kushner-Locke guaranteed US SEARCH's obligations for purchases
of broadcast media advertising, not to exceed $837,000. The accrued balance of
its obligations as of December 31, 1998 was approximately $896,000 for
advertising which commenced on July 1, 1998.
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Kushner-Locke guaranteed certain related-party notes payable not to exceed
$68,000. As of December 31, 1998, US SEARCH's obligation on these related-party
notes was approximately $70,000.
Kushner-Locke guaranteed US SEARCH's obligations under certain distribution
and marketing agreements with certain Internet companies. As of December 31,
1998, the minimum non-cancelable fees under these agreements are approximately
$3,000,000 for 1999.
In June 1998, US SEARCH became a guarantor of Kushner-Locke's $60 million
Credit, Security, Guaranty and Pledge Agreement (the "credit facility") with
The Chase Manhattan Bank ("Chase"). In connection with the credit facility, US
SEARCH granted Chase a security interest in all of its assets. Chase also has a
security interest in the common stock of US SEARCH held by Kushner-Locke. US
SEARCH expects that upon the consummation of this offering, the common stock of
US SEARCH held by Kushner-Locke and the assets of US SEARCH will be released
from this security interest, and US SEARCH will no longer be a guarantor of the
credit facility.
Other Agreements
Effective February 1998, Kushner-Locke retained Alan Mazursky to provide
consulting services to Kushner-Locke for a minimum six month term at a rate of
$13,100 per month. From May 1998 through July 1998, Kushner-Locke provided Mr.
Mazursky's services to US SEARCH as a financial consultant. From August 1998
through February 1999, Mr. Mazursky's services to US SEARCH were provided as
part of his duties as an employee of Kushner-Locke under the Administrative
Services Agreement.
Effective July 1998, US SEARCH and Kushner-Locke entered into an
Administrative Services Agreement, under which Kushner-Locke provides
administrative services to US SEARCH, including human resources, legal
services, accounting services and certain management services, as well as the
services of Peter Locke and Donald Kushner, through June 1999. In connection
with this agreement, US SEARCH agreed to pay to Kushner-Locke a monthly fee of
$35,000, which may be decreased in certain circumstances. Approximately
$210,000 were billed to US SEARCH under this agreement for the year ended
December 31, 1998. Approximately $90,000 was billed to US SEARCH in connection
with services rendered by Kushner-Locke prior to entering into the
Administrative Services Agreement. As a result, a total of approximately
$300,000 was billed to US SEARCH in connection with services rendered by
Kushner-Locke in 1998.
In September 1998, Mr. Matzorkis agreed to transfer his shares of common
stock to an irrevocable trust managed by an independent trustee. Kushner-Locke
agreed to enter into a stockholder agreement with the trustee in which Kushner-
Locke will agree to vote all shares held by Kushner-Locke in favor of one
director, subject to certain conditions, nominated by the trustee, and the
trustee will agree to vote all shares held by the trust in favor of three
directors nominated by Kushner-Locke. The stockholder agreement will terminate
automatically upon completion of this offering, or if at any time the shares
held by the trust represent less than 10% of the outstanding shares of common
stock. In September 1998, US SEARCH agreed to reimburse Mr. Matzorkis for
certain legal and consulting expenses, up to a maximum of $20,000, in
connection with the negotiation, preparation and execution of the stockholders'
agreement and his amended and restated employment agreement. See "Management--
Employment Agreements."
US SEARCH intends to enter into indemnification agreements with its
directors and executive officers for the indemnification of and advancement of
expenses to these persons to the full extent permitted by law. US SEARCH also
intends to execute these agreements with its future directors and executive
officers.
US SEARCH believes that the foregoing transactions were in its best
interest. As a matter of policy the transactions were, and all future
transactions between US SEARCH and any of its officers, directors or principal
stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, will be on terms no less
favorable to US SEARCH than could be obtained from unaffiliated third parties
and will be in connection with its bona fide business purposes.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of our common stock offered hereby, by: (1) each stockholder who owns
beneficially more than 5% of our common stock; (2) each Named Executive Officer
of US SEARCH; (3) each director of US SEARCH; and (4) all directors and
executive officers of US SEARCH as a group. Unless otherwise indicated, to our
knowledge, all persons listed below have sole voting and investment power with
respect to their shares of our common stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
Shares Beneficially
Shares Beneficially Owned Number of Owned After the
Prior to the Offering Shares Offering
--------------------------- being -----------------------
Number Percent Offered Number Percent
------------- ------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
5% Stockholders,
Named Executive Officers
and Directors
The Kushner-Locke 12,250 86.0% %
Company(1).............
601 Wilshire Boulevard,
21st Floor
Los Angeles, California
90025
The SHMNM Investment 2,000 14.0% -- 2,000 %
Trust(2)...............
C. Nicholas Keating, 209 1.4% -- 209 %
Jr.(3).................
Peter Locke(4).......... 12,250 86.0% -- --
Donald Kushner(4)....... 12,250 86.0% -- --
Russel I. Pillar........ -- -- -- -- --
Nicholas Rockefeller.... -- -- -- -- --
Harry B. Chandler....... -- -- -- -- --
Alan C. Mendelson....... -- -- -- -- --
All directors and
executive officers (10
persons)(5)............ 209 1.4% -- 209 %
</TABLE>
- ----------
(1) Consists of 8,000 shares of common stock, 1,500 shares subject to warrants
exercisable within 60 days, and 2,750 shares subject to convertible notes
convertible within 60 days. All of these warrants and convertible notes
will be converted upon this offering.
(2) Consists of 2,000 shares held in an irrevocable trust managed by Nicholas
Rockefeller as trustee for the sole benefit of Susan Hanle, Mr. Matzorkis'
spouse. Mr. Matzorkis disclaims beneficial ownership as to all of the
shares held by the trust. The trust has granted an option to the
underwriters to purchase shares solely for the purpose of covering
over-allotments. Nicholas Rockefeller's address is 2029 Century Park East,
24th Floor, Los Angeles, CA 90067.
(3) Consists of 209 shares subject to options exercisable within 60 days.
(4) Includes 12,250 shares beneficially owned by Kushner-Locke. Mr. Locke and
Mr. Kushner are each directors of US SEARCH and each also serve as Co-
Chairman and Co-Chief Executive Officer of Kushner-Locke. Mr. Locke and Mr.
Kushner may be deemed to have voting and investment power over the shares
held by Kushner-Locke. Mr. Locke and Mr. Kushner each disclaim beneficial
ownership as to all of the shares held by Kushner-Locke.
(5) Consists of 209 shares subject to options held by Mr. Keating, President,
CEO and director, exercisable within 60 days. Does not include 12,250
shares beneficially owned by Kushner-Locke.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of US SEARCH
will consist of 40,000,000 shares of common stock, $.001 par value, and
1,000,000 shares of preferred stock, $.001 par value.
Common Stock
As of December 31, 1998, and after giving effect to the issuance of 1,500
shares of common stock issuable upon the exercise of warrants assumed
outstanding as of such date and the issuance of 2,750 shares of common stock
upon the conversion of the outstanding convertible subordinated notes assumed
outstanding as of December 31, 1998, there were 14,250 shares of common stock
outstanding held of record by two stockholders. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of the stockholders. Subject to preferences that may be applicable to
any outstanding shares of preferred stock, the holders of common stock are
entitled to receive ratably the dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In
the event of a liquidation, dissolution or winding up of US SEARCH, holders of
the common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preferences of any outstanding
shares of preferred stock. Holders of common stock have no preemptive rights
and no right to convert their common stock into any other securities. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully-paid and
nonassessable.
Preferred Stock
There are no shares of preferred stock outstanding. The Board of Directors
has the authority, without further action by the stockholders, to issue up to
1,000,000 shares of preferred stock, $.001 par value, in one or more series and
to fix the powers, preferences, privileges, rights and qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of the series, without any further vote or action by stockholders. We believe
that the Board of Directors' authority to set the terms of, and our ability to
issue, preferred stock will provide flexibility in connection with possible
financing transactions in the future. The issuance of preferred stock, however,
could adversely affect the voting power of holders of common stock, and the
likelihood that the holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of US SEARCH. We have no present plan to issue any shares of
preferred stock.
Registration Rights
Kushner-Locke has registration rights related to 1,500 shares of common
stock issuable upon the exercise of warrants and 2,750 shares of common stock
issuable upon the conversion of convertible subordinated notes held by Kushner-
Locke. If US SEARCH proposes to register its common stock, subject to certain
exceptions, under the Securities Act, the holders of those shares are entitled
to notice of the registration and to include the shares in that offering,
provided that the managing underwriters have the right to determine the number
of shares included in the registration. In addition, the holders may require US
SEARCH, on one occasion, to file a registration statement under the Securities
Act with respect to their shares of common stock. These rights may not be
exercised until one year after the closing of this offering. US SEARCH has the
right to defer the registration for up to 120 days upon the good faith
determination of the Board of Directors that the registration would be
seriously detrimental to US SEARCH and its stockholders. To the extent
requested by an underwriter, the holders will defer the sale of shares for a
period commencing 20 days prior to and terminating 180 days after the effective
date of the registration statement, provided that any principal shareholders
other than the holders who also have shares included in the registration
statement will also defer their sales for a similar period.
54
<PAGE>
Delaware Law and Certain Charter Provisions
US SEARCH is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and employees, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
Our certificate of incorporation and bylaws also require that, effective
upon the closing of this offering, any action required or permitted to be taken
by our stockholders must be effected at a duly called annual or special meeting
of the stockholders and may not be effected by a consent in writing. In
addition, special meetings of our stockholders may be called only by our Board
of Directors, Chairman of the Board, Chief Executive Officer, or a majority of
the stockholders. Our certificate of incorporation and bylaws also provide that
directors may be removed by a vote of a majority of the stockholders and that
vacancies on the Board created either by resignation, death, disqualification,
removal or by an increase in the size of the Board may be filled by a majority
of the directors in office, or a majority of the stockholders. Our certificate
of incorporation also provides for a classified Board and specifies that the
authorized number of directors may be changed only by resolution of the Board
of Directors. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of US SEARCH. See
"Management--Board Composition."
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for our common stock.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the common stock.
No information is currently available and no prediction can be made as to the
timing or amount of future sales of shares, or the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have on
the market price of the common stock prevailing from time to time. Sales of
substantial amounts of the common stock (including shares issuable upon the
exercise of stock options) in the public market after the lapse of the
restrictions described below, or the perception that the sales may occur, could
materially adversely affect the prevailing market prices for the common stock
and the ability of US SEARCH to raise equity capital in the future. See "Risk
Factors--Shares Eligible for Future Sale; No Prior Trading Market; Registration
Rights."
Upon consummation of the offering, US SEARCH will have approximately
million outstanding shares of common stock, approximately million shares if
the underwriters' over-allotment option is exercised in full and 1,610 shares
of common stock subject to options granted as of March 31, 1999 under the 1998
Stock Incentive Plan and 1999 Non-Employee Directors' Stock Option Plan,
respectively. See "Management--Executive Compensation." These shares of common
stock being sold in the offering will be immediately eligible for sale in the
public market without restriction or further registration under Securities Act,
unless they are purchased by or issued to any "affiliate" of US SEARCH, as that
term is defined in Rule 144, described below. All of the shares of common stock
outstanding prior to the offering are "restricted securities" as the term is
defined under Rule 144, in that the shares were issued in private transactions
not involving a public offering and may not be sold in the absence of
registration other than in accordance with Rule 144 under the Securities Act or
another exemption from registration.
In general, under Rule 144 as currently in effect, any affiliate of US
SEARCH or any person (or persons whose shares are aggregated in accordance with
Rule 144) who has beneficially owned shares of common stock which are treated
as restricted securities for at least one year would be entitled to sell within
any three-month period commencing 90 days after this offering, a number of
shares that does not exceed the greater of 1% of the outstanding shares of
common stock or the reported average weekly trading volume of the common stock
during the four weeks preceding the date on which notice of the sale was filed
under Rule 144. Sales under Rule 144 are also subject to certain manner of sale
restrictions and notice requirements and the availability of current public
information about US SEARCH. In addition, affiliates of US SEARCH must comply
with the restrictions and requirements of Rule 144 (other than the one-year
holding period requirements) in order to sell shares of common stock that are
not restricted securities (such as common stock acquired by affiliates in
market transactions). Furthermore, a person who is not deemed to have been an
affiliate of US SEARCH for at least three months prior to a sale, and who has
beneficially owned for at least two years the shares proposed to be sold, would
be entitled to sell the shares immediately without regard to the volume, manner
of sale, notice and public information requirements of Rule 144.
Holders of approximately 4,250 shares of our outstanding common stock will
have certain demand registration rights with respect to the shares of common
stock (subject to the 180-day lock-up arrangement described below), under
certain circumstances and subject to certain conditions, to require us to
register their shares of common stock under the Securities Act and certain
rights to participate in any future registration of securities by US SEARCH. We
are not required to effect more than one demand registration on behalf of the
holders. Holders of registrable securities have agreed to be subject to lock-up
periods of up to 180 days following the date of this prospectus and up to 180
days prior to effective date of any subsequent prospectus. We intend to file a
registration statement on Form S-8 for the shares held pursuant to our option
plans that may make those shares freely tradeable. The registration statement
will become effective immediately upon filing and, shares covered by that
registration statement will thereupon be eligible for sale in the public
markets, subject to applicable lock-up agreement and Rule 144 limitations
applicable to affiliates. See "Description of Capital Stock--Registration
Rights."
56
<PAGE>
US SEARCH and its executive officers, directors and its current stockholders
have agreed that, subject to certain exceptions, for a period of 180 days after
the date of this prospectus, without the prior written consent of Bear, Stearns
& Co. Inc., they will not, (1) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, (2) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of common stock, or (3)
make any demand for or exercise any right with respect to, the registration of
any shares of common stock or any security convertible into or exercisable or
exchangeable for common stock.
57
<PAGE>
UNDERWRITING
The underwriters of the initial public offering named below (the
"underwriters"), for whom Bear, Stearns & Co. Inc. and BancBoston Robertson
Stephens Inc. are acting as representatives, have severally agreed with US
SEARCH, subject to the terms and conditions of the underwriting agreement (the
form of which has been filed as an exhibit to the registration statement on
Form S-1 of which this prospectus is a part), to purchase from US SEARCH and
Kushner-Locke the aggregate number of shares set forth opposite their
respective names below at the initial public offering price less the
underwriting discounts and commission set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
BancBoston Robertson Stephens Inc. .........................
Wit Capital Corporation.....................................
---
Total.....................................................
===
</TABLE>
The nature of the respective obligations of the underwriters is such that
all of the shares of common stock must be purchased if any are purchased. Those
obligations are subject, however, to various conditions, including the approval
of certain matters by counsel. US SEARCH has agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, and, where the indemnification is unavailable, to contribute to
payments that the underwriters may be required to make in respect of such
liabilities.
US SEARCH has been advised that the underwriters propose to offer the shares
of common stock, initially at the initial public offering price set forth on
the cover page of this prospectus and to certain selected dealers at such price
less a concession not to exceed $ per share; that the underwriters may allow,
and such selected dealers may reallow, a concession to certain other deals not
to exceed $ per share; and that after the commencement of the offering, the
public price and the concessions may be changed.
US SEARCH has granted the underwriters an option to purchase in the
aggregate up to additional shares of common stock solely to cover over-
allotments, if any. The option may be exercised in whole or in part at any time
within 30 days after the date of this prospectus. To the extent the option is
exercised, the underwriters will be severally committed, subject to certain
conditions, including the approval of certain matters by counsel, to purchase
the additional shares of common stock in proportion to their respective
purchase commitments as indicated in the preceding table.
The underwriters have reserved for sale at the initial public offering price
up to 5% of the shares of common stock to be sold in the initial public
offering for sale to employees of US SEARCH and its affiliates, and to their
associates and related persons. The number of shares available for sale to the
general public will be reduced to the extent any reserved shares are purchased.
Any reserved shares not so purchased will be offered by the underwriters on the
same basis as the other shares offered hereby. The underwriters do not expect
sales of common stock to any accounts over which they exercise discretionary
authority to exceed % of the number of shares being offered hereby.
US SEARCH and its executive officers, directors and certain of its current
stockholders have agreed that, subject to certain exceptions, for a period of
180 days after the date of this prospectus, without the prior written consent
of Bear, Stearns & Co. Inc., they will not, directly or indirectly offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, any shares of common stock
or any securities convertible into or exercisable or exchangeable for common
stock of US SEARCH or enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the exercise consequences of ownership
of common stock, whether such transaction is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
58
<PAGE>
Prior to the offering, there was no public market for the common stock.
Consequently, the initial public offering price was determined through
negotiations among US SEARCH and representatives of the underwriters. Among the
factors considered in making such determination were US SEARCH's financial and
operating history and condition, its prospectus and prospects for the industry
in which it does business in general, the management of US SEARCH, prevailing
equity market conditions and the demand for securities considered comparable to
those of US SEARCH.
In order to facilitate the offering, certain persons participating in the
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after the offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares than
have been sold to them by US SEARCH . The underwriters may elect to cover any
such short position by purchasing shares in the open market or by exercising
the over-allotment options granted to the underwriters. In addition, such
persons may stabilize or maintain the price of the common stock by bidding for
or purchasing shares in the open market and may impose penalty bids, under
which selling concessions allowed to syndicate members or other broker-dealers
participating in the offering are reclaimed if shares previously distributed in
the offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of the common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of common stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discounted at any time.
59
<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for US SEARCH by Cooley Godward LLP, Palo Alto, California. Alan C.
Mendelson, a senior partner of Cooley Godward llp, serves as one of our
directors and has been granted an option to purchase 39 shares of common stock,
with an exercise price of $4,032.80 per share, under our 1999 Non-Employee
Directors' Stock Option Plan. Certain legal matters in connection with the
offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of US SEARCH as of December 31, 1997 and 1998, and
for each of the three years in the period ended December 31, 1998, appearing in
this prospectus and registration statement have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
their report given on the authority of the firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A registration statement on Form S-1, including amendments thereto, relating
to the common stock offered hereby has been filed by US SEARCH with the
Securities and Exchange Commission. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of the contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. For further information with respect to US
SEARCH and the common stock offered hereby, reference is made to such
registration statement, exhibits and schedules. A copy of the registration
statement may be inspected by anyone without charge at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, NW, Judiciary Plaza, Washington, D.C. 20549, and copies of all or any
part thereof maybe obtained from the Securities and Exchange Commission upon
payment of certain fees prescribed by the Securities and Exchange Commission.
The Securities and Exchange Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information filed
electronically with the Securities and Exchange Commission. The address of the
site is http://www.sec.gov.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1997 and 1998......................... F-3
Statements of Operations for Each of the Three Years in the Period Ended
December 31, 1998...................................................... F-4
Statements of Stockholders' Deficit for Each of the Three Years in the
Period Ended December 31, 1998......................................... F-5
Statements of Cash Flows for Each of the Three Years in the Period Ended
December 31, 1998...................................................... F-6
Notes to the Financial Statements....................................... F-7
</TABLE>
F-1
<PAGE>
The following report is in the form that will be signed upon the completion
of the Company's proposed reincorporation into Delaware as described in Note 3
of Notes to the financial statements.
PricewaterhouseCoopers LLP
Woodland Hills, California
, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of US SEARCH Corp.com:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of US SEARCH Corp.com (the "Company")
as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Woodland Hills, California
February 22, 1999, except for the
effects of the reincorporation into
Delaware described in Note 3 as to
which the date is , 1999
F-2
<PAGE>
US SEARCH CORP.COM
BALANCE SHEETS
As Of December 31, 1997 And 1998
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1997 1998 1998
------------ ------------ ------------
(Pro Forma)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............. $ -- $ 99,000 $ 99,000
Accounts receivable, less allowance
for doubtful accounts of $87,000
(1997) and $64,000 (1998)............ 177,000 83,000 83,000
Prepaids and other current assets..... 53,000 6,000 6,000
----------- ----------- -----------
Total current assets................ 230,000 188,000 188,000
Property and equipment, net............. 301,000 371,000 371,000
Other assets............................ 16,000 16,000 16,000
----------- ----------- -----------
Total assets...................... $ 547,000 $ 575,000 $ 575,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Cash overdrafts....................... $ 101,000 $ -- $ --
Accounts payable...................... 1,165,000 3,721,000 3,721,000
Accrued liabilities................... 484,000 570,000 570,000
Lines of credit....................... 34,000 372,000 372,000
Notes payable, current portion........ 90,000 693,000 693,000
Capital lease obligations, current
portion.............................. 43,000 40,000 40,000
Related-party notes payable........... 676,000 2,553,000 2,553,000
----------- ----------- -----------
Total current liabilities........... 2,593,000 7,949,000 7,949,000
Notes payable, net of current portion... -- 269,000 269,000
Related-party notes payable, net of
current portion........................ -- 29,000 29,000
Capital lease obligation, net of current
portion................................ 61,000 45,000 45,000
Other non-current liabilities........... 44,000 32,000 32,000
----------- ----------- -----------
Total liabilities................. 2,698,000 8,324,000 8,324,000
----------- ----------- -----------
Commitments and contingencies (Note 11)
Stockholders' deficit:
Common stock, $0.001 par value;
authorized 40,000,000 shares; issued
and outstanding 10,000 shares for
1997 and 1998 (and 10,500 for 1998,
on a pro forma basis)................ 15,000 1,205,000 --
Additional paid-in capital............ -- -- 1,205,000
Accumulated deficit................... (2,166,000) (8,954,000) (8,954,000)
----------- ----------- -----------
Total stockholders' deficit....... (2,151,000) (7,749,000) (7,749,000)
----------- ----------- -----------
Total liabilities and
stockholders' deficit............ $ 547,000 $ 575,000 $ 575,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
US SEARCH CORP.COM
STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1996, 1997 And 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Net revenues............................ $ 5,690,000 $2,971,000 $ 9,245,000
Cost of services........................ 3,363,000 1,501,000 3,769,000
----------- ---------- -----------
Gross profit........................ 2,327,000 1,470,000 5,476,000
Operating expenses:
Advertising and marketing............. 2,559,000 655,000 7,007,000
General and administrative............ 1,007,000 1,165,000 3,882,000
Charge for warrants issued to majority
stockholder.......................... -- -- 1,190,000
----------- ---------- -----------
Total operating expenses............ 3,566,000 1,820,000 12,079,000
----------- ---------- -----------
Loss from operations.................... (1,239,000) (350,000) (6,603,000)
Interest expense........................ (64,000) (110,000) (197,000)
Other (expense) income, net............. (60,000) 63,000 13,000
----------- ---------- -----------
Loss before income taxes............ (1,363,000) (397,000) (6,787,000)
Provision for income taxes.............. 1,000 2,000 1,000
----------- ---------- -----------
Net loss.............................. $(1,364,000) $ (399,000) $(6,788,000)
=========== ========== ===========
Basic and diluted net loss per share.... $ (129.90) $ (38.00) $ (646.48)
=========== ========== ===========
Weighted-average shares outstanding used
in per-share calculation............... 10,500 10,500 10,500
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
US SEARCH CORP.COM
STATEMENTS OF STOCKHOLDERS' DEFICIT
For The Years Ended December 31, 1996, 1997 And 1998
<TABLE>
<CAPTION>
Common Stock Total
---------------- Additional Accumulated Stockholders'
Shares Amount Paid-In Capital Deficit (Deficit)
------ --------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 10,000 $ 15,000 $ -- $ (403,000) $ (388,000)
Net loss............... -- -- -- (1,364,000) (1,364,000)
------ --------- ---------- ----------- -----------
Balance, December 31,
1996................... 10,000 15,000 -- (1,767,000) (1,752,000)
Net loss............... -- -- -- (399,000) (399,000)
------ --------- ---------- ----------- -----------
Balance, December 31,
1997................... 10,000 15,000 -- (2,166,000) (2,151,000)
Issuance of warrants to
majority stockholder.. -- 1,190,000 -- -- 1,190,000
Net loss............... -- -- -- (6,788,000) (6,788,000)
------ --------- ---------- ----------- -----------
Balance, December 31,
1998................... 10,000 1,205,000 -- (8,954,000) (7,749,000)
Assumed exercise of
warrants (unaudited).. 500 -- -- -- --
Reincorporation into
Delaware and change in
par value of common
stock (unaudited)..... -- 1,205,000 1,205,000 -- --
------ --------- ---------- ----------- -----------
Balance, December 31,
1998, pro forma
(unaudited)............ 10,500 $ -- $1,205,000 $(8,954,000) $(7,749,000)
====== ========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
US SEARCH CORP.COM
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1996, 1997 And 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................. $(1,364,000) $(399,000) $(6,788,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 67,000 99,000 128,000
Provision for doubtful accounts......... -- 153,000 364,000
Compensation charge..................... -- -- 296,000
Charge for warrants issued to majority
stockholder............................ -- -- 1,190,000
Related-party charges................... -- -- 384,000
Change in assets and liabilities:
Accounts receivable.................... -- (245,000) (270,000)
Accounts payable....................... 1,054,000 (27,000) 3,193,000
Accrued liabilities.................... 180,000 108,000 86,000
Other.................................. (15,000) (10,000) 38,000
----------- --------- -----------
Net cash used in operating activities..... (78,000) (321,000) (1,379,000)
----------- --------- -----------
Cash flows from investing activities:
Additions to property and equipment...... (247,000) (15,000) (168,000)
Loans to related parties................. (177,000) (17,000) --
Repayments of related-party loans........ 3,000 -- --
----------- --------- -----------
Net cash used in investing activities..... (421,000) (32,000) (168,000)
----------- --------- -----------
Cash flows from financing activities:
Increase (decrease) in cash overdrafts... 33,000 68,000 (101,000)
Proceeds from line of credit............. 36,000 8,000 1,126,000
Repayments of line of credit............. (3,000) (8,000) (788,000)
Proceeds from notes payable.............. 219,000 -- --
Repayments of notes payable.............. (56,000) (73,000) (238,000)
Advances from related parties............ 409,000 930,000 1,816,000
Repayments to related parties............ (122,000) (539,000) (121,000)
Repayments of capital lease obligations.. (24,000) (33,000) (48,000)
----------- --------- -----------
Net cash provided by financing
activities............................... 492,000 353,000 1,646,000
----------- --------- -----------
Net (decrease) increase in cash and cash
equivalents.............................. (7,000) -- 99,000
Cash at beginning of year................. 7,000 -- --
----------- --------- -----------
Cash at end of year....................... $ -- $ -- $ 99,000
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business:
US SEARCH Corp.com (the "Company") provides public record information about
individuals. The Company was formed as a California S Corporation in 1994, and
converted to a C Corporation in November 1997.
In November 1997, The Kushner-Locke Company ("Kushner-Locke"), acquired 80%
of the outstanding shares of the Company in exchange for the indemnification of
certain liabilities not to exceed $670,000. The Company's financial statements
are presented on a historical basis and do not reflect the push-down of
Kushner-Locke's purchase accounting adjustments.
2. Management's Plans:
The Company has incurred operating losses since its inception. In addition,
the Company has a working capital deficit of approximately $7,761,000 and a
stockholders' deficit of approximately $7,749,000 as of December 31, 1998.
The Company has historically funded losses through the deferral of trade
payables, refinancing of trade payables, and through debt financing. Since
November 1997, the Company has borrowed primarily from Kushner-Locke. In
January 1999, the Company obtained bridge financing in the form of subordinated
convertible notes to Kushner-Locke (see Note 16). In addition, Kushner-Locke
has committed to provide the Company with additional financial support as
needed through the earlier of (a) a public sale or private placement of
securities or (b) March 31, 2000.
3. Summary of Significant Accounting Policies:
Initial Public Offering and Unaudited Pro Forma Balance Sheet
In March 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). If the IPO is
consummated under the terms presently anticipated, upon the closing of the
proposed IPO all of the then outstanding warrants issued in September 1998 and
January 1999 (see Notes 13 and 16) and the convertible subordinated notes (see
Note 16) will automatically convert into shares of common stock. The assumed
conversion of the warrants issued in September 1998 has been reflected in the
accompanying unaudited pro forma balance sheet as at December 31, 1998.
In February 1999, the Board of Directors approved the reincorporation of the
Company in the State of Delaware and a change in the par value of the Company's
common stock which will be effected prior to the closing of the IPO.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash overdrafts
resulted primarily from checks issued and outstanding in excess of book cash
balances and from bank disbursements in excess of actual cash balances.
F-7
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the assets. Leasehold improvements and equipment
under capital leases are amortized over the shorter of the estimated useful
life or the life of the lease. Depreciation and amortization periods by asset
category are as follows:
<TABLE>
<S> <C>
Equipment......................... 3-10 years
Furniture and fixtures............ 7 years
Leasehold improvements............ Shorter of useful life or lease term
Equipment under capital leases.... Shorter of useful life or lease term
</TABLE>
Maintenance and repairs are charged to expense as incurred while renewals
and improvements are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation, with any resulting gain or loss included in the Statement of
Operations.
Long-Lived Assets
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
Fair Value of Financial Instruments
The estimated fair value of cash overdrafts, accounts receivable, accounts
payable and accrued liabilities approximate their carrying values. Estimation
of the fair value of the Company's short-term and long-term notes, the majority
of which are related-party notes, is not practicable.
Net Loss Per Common Share
Basic net loss per common share is computed using the weighted-average
number of shares of common stock and diluted net loss per common share is
computed using the weighted average number of shares of common stock and common
equivalent shares outstanding. Common equivalent shares related to stock
options and warrants are excluded from the computation when their effect is
antidilutive.The warrants issued to Kushner-Locke in September 1998 were issued
for nominal consideration (see Note 13). For purposes of computing basic and
diluted net loss per share, the common stock issuable pursuant to these
warrants is considered outstanding for all periods presented in the
accompanying Statements of Operations.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement established standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income generally represents all
changes in stockholders' deficit during the period except those resulting from
investments by, or distributions to, stockholders. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997, and requires restatement of
earlier periods presented. SFAS No. 130 defines comprehensive income as net
income plus all other changes in equity from nonowner sources. The Company has
no other comprehensive income items and accordingly net income equals
comprehensive income.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees,"
F-8
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
and complies with the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation cost, if any, is
recognized over the respective vesting period based on the difference, on the
date of grant, between the fair value of the Company's common stock and the
grant price.
Segment Reporting
The Company adopted Statement of Financial Accounting Standards No. 131.
"Disclosures about Segments of an Enterprise and Related Information" for the
year ended December 31, 1998. SFAS No. 131 supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise", replacing the "industry
segment" approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about products or
services, geographic areas and major customers. The Company's management
reporting structure provides for only one segment and accordingly no separate
segment information is presented. In addition, the Company operates only in the
United States and no single customer accounts for more than 10% of revenues for
all periods presented.
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities are determined based on the
difference between the financial statement and the tax bases of assets and
liabilities using enacted tax rates in effect for the period in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Revenue Recognition
The Company generates revenues by performing various information search
services for customers. Revenue is recognized when the results of the search
services are delivered. In instances where searches are not completed to the
customer's satisfaction, the Company performs limited additional customer
support for up to one year following the initial sale. These customer support
costs are estimated and provided for in the period of sale.
Advertising Costs
Advertising production costs are expensed the first time the advertisement
is run. Media costs are expensed in the month the advertising appears.
Advertising expense was approximately $2,530,000 for the year ended December
31, 1996, $646,000 for 1997 and $6,944,000 for 1998.
4. New Accounting Pronouncements:
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. This SOP is effective for fiscal periods commencing after
December 15, 1998. Management does not believe that the implementation of SOP
98-1 will have a material effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires companies to recognize all derivatives as either assets or liabilities
in the statement of financial
F-9
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
position and measures those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Management does not believe that the implementation of SFAS No. 133 will
have any impact on the financial statements since the Company does not engage
in derivative or hedging activities.
5. Concentrations of Risk:
Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
domestic financial institutions. The Company performs periodic evaluations of
the relative credit standing of these institutions. From time to time, the
Company's cash balances with any one financial institution may exceed Federal
Deposit Insurance Corporation (FDIC) insurance limits.
The Company's customers are concentrated in the United States. The Company
extends minimum levels of credit to customers and does not require collateral.
The Company maintains reserves for potential credit losses which to date have
been within management's expectations.
Business Risk
The Company provides services to its customers using internal and external
computer systems. Operations are currently susceptible to varying degrees of
physical and electronic security as well as varying levels of internal support.
A disruption in security or internal support could cause a delay in the
Company's performance of services which would adversely affect operating
results.
6. Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ---------
<S> <C> <C>
Beginning balance....................................... $ -- $ 87,000
Additions............................................... 153,000 364,000
Deductions.............................................. (66,000) (387,000)
-------- ---------
Ending balance.......................................... $ 87,000 $ 64,000
======== =========
</TABLE>
F-10
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Property and Equipment:
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Equipment................................................. $255,000 $405,000
Furniture and fixtures.................................... 34,000 40,000
Leasehold improvements.................................... 26,000 38,000
Equipment under capital leases............................ 161,000 191,000
-------- --------
Total..................................................... 476,000 674,000
Less, accumulated depreciation, including capital lease
amortization of $56,000 and $94,000 at December 31, 1997
and 1998, respectively................................... 175,000 303,000
-------- --------
Property and equipment, net............................... $301,000 $371,000
======== ========
</TABLE>
8. Lines of Credit:
In September 1996, the Company established a $35,000 revolving line of
credit (the "line") with a commercial bank. In fiscal year 1997, the line was
capped at $34,000, converted to a term loan bearing interest at 14.5% at
December 31, 1998, and is not subject to additional borrowings. As of December
31, 1998, the outstanding balance under the line was approximately $27,000.
In February 1998, the Company entered into a revolving line of credit (the
"Credit Agreement") with Comerica Bank ("Comerica"). The Credit Agreement is
collateralized by substantially all of the Company's assets and bears interest
at a variable rate of Comerica's base rate plus 2.5% (10.25% at December 31,
1998). The Credit Agreement required the Company to maintain a cash flow to
fixed charge ratio, as defined, and certain restrictive covenants including,
among other things, limitations on additional indebtedness, liens, investments,
disposition of assets, mergers, changes in ownership, guarantees, the use of
proceeds, payment of cash dividends and prepayment of subordinated debt.
Kushner-Locke is a guarantor under the Credit Agreement. In May 1998, Comerica
granted a waiver of non-compliance to the Company. In August 1998, Comerica
revised the term of the Credit Agreement, which was capped at $345,000 (the
outstanding balance as of the date of revision), with repayment of outstanding
amounts due on or before November 15, 1998. In addition, the cash flow to fixed
charge ratio was rescinded. In December 1998, Comerica extended the maturity
date to March 1999. The Company agreed to fully retire all indebtedness on or
before March 31, 1999. Upon the receipt of funding from any financing
transaction, by the Company, the Company will immediately repay the Credit
Agreement in full, or provide such funds as cash collateral to Comerica. As of
December 31, 1998, the outstanding amount under the Credit Agreement was
approximately $345,000.
9. Accrued Liabilities:
Accrued liabilities is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Sales and payroll taxes................................... $226,000 $107,000
Accrued vacation and payroll.............................. 105,000 203,000
Accrued professional fees................................. 55,000 70,000
Other accrued expenses.................................... 98,000 190,000
-------- --------
$484,000 $570,000
======== ========
</TABLE>
F-11
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Notes Payable:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ----------
<S> <C> <C>
Note payable to Kushner-Locke, payable on demand bearing
interest at 10% per annum................................ $388,000 $2,540,000
Note payable to third party, payable July 1999, bearing
interest at 12% per annum................................ -- 296,000
Notes payable in equal monthly installments of $3,333
comprising principal and interest through December 2000
bearing interest at 12.5% per annum...................... 100,000 70,000
Trade notes payable, due in monthly installments by
$13,583 comprising principal and interest through
November 1999 bearing interest at 10.0% per annum........ -- 142,000
Trade notes payable, due in blended monthly installments
through May 2000 bearing interest at 10.0% per annum..... -- 186,000
Loan payable to former stockholder/executive officer of
the Company, due in monthly installments through July
2001, non interest bearing............................... 75,000 68,000
Note payable in equal monthly installments through
December 2000, bearing interest at 12.25% per annum(1)... 50,000 35,000
Loan payable to executive officer of the Company, payable
in monthly installments of $1,100, non-interest bearing.. 48,000 42,000
Notes payable to employees and other related parties,
various due dates, bearing interest at 20% per annum..... 15,000 --
Other trade notes payable, payable through 2000 bearing
interest at 10% per annum................................ -- 165,000
Trade note payable, payable in four monthly installments
due March 31, 1998, bearing interest at 12% per annum.... 90,000 --
-------- ----------
Total notes payable................................... $766,000 $3,544,000
======== ==========
Related-party notes payable:
Current................................................. $676,000 $2,553,000
Noncurrent.............................................. -- 29,000
Other notes payable:
Current................................................. 90,000 693,000
Noncurrent.............................................. -- 269,000
-------- ----------
Total notes payable................................... $766,000 $3,544,000
======== ==========
</TABLE>
The maturities of the third-party notes as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................... $707,000
2000........................................................... 241,000
2001........................................................... 14,000
--------
Total:....................................................... $962,000
========
</TABLE>
- ----------
(1) The former stockholder/executive was a related party through December 31,
1997.
F-12
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. Commitments And Contingencies:
Capitalized Leases
The Company has entered into capital lease agreements for their telephone
system and other office equipment.
Operating Leases
The Company leases its Beverly Hills, California headquarters under an
operating lease that expires February 14, 2001, if not renewed. The Company has
an option to renew the lease for a term of 36 months. Future minimum lease
obligations related to this lease have not been reduced by related future
minimum sublease rentals of $136,000 to be received over the term of this
lease. The Company has certain operating lease agreements for other office
equipment.
Rent expense pertaining to all operating leases for the years ended December
31, 1996, 1997 and 1998 was approximately $167,000, $180,000 and $135,000,
respectively.
The future minimum lease payments under capital leases and noncancellable
operating leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1999................................................... $ 52,000 $125,000
2000................................................... 35,000 132,000
2001................................................... 16,000 14,000
Thereafter............................................. -- --
-------- --------
Total minimum obligations.............................. 103,000 $271,000
========
Less interest.......................................... (18,000)
Present value of minimum obligations................... 85,000
Less current portion................................... 40,000
--------
Noncurrent obligations at December 31, 1998............ $ 45,000
========
</TABLE>
Employment And Consulting Agreements
The former president and co-founder of the Company entered into a three-year
employment agreement as Founder and Chief of Technology with the Company
effective in September 1998. The employment agreement provides increases in the
base compensation to $175,000 for the first year, with annual increases of
$25,000 increasing the base compensation to $225,000 for the third year,
following the completion of permanent financing of at least $10,000,000. The
Company will pay the premiums on a $1,000,000 life insurance policy for the
benefit of the employee's designated beneficiaries, and key man life insurance
on the employee's life for the benefit of the Company. In addition, the Company
agreed to assume his $296,000 loan payable to an individual (see Note 12).
Strategic Alliance Commitments
The Company has several cancellable and non-cancelable distribution and
marketing agreements with certain Internet companies. Certain terms of these
agreements provide for varying levels of exclusivity and minimum and maximum
fees payable based on the number of banners, buttons and text links displayed
on
F-13
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
affiliate web sites. The minimum non-cancelable payments required under these
agreements are approximately $3,000,000 for the year ending December 31, 1999,
$3,000,000 for 2000, $3,000,000 for 2001, and $1,000,000 for 2002.
Litigation
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising in the normal course of
business. Management believes that the resolution of these matters will not
have a material adverse effect on the Company's business and results of
operations.
12. Related Parties:
Related-Party Transactions
On November 21, 1997, Kushner-Locke acquired 80% of the outstanding shares
of the Company in exchange for the indemnification of certain liabilities not
to exceed $670,000.
From May 1997 to October 1997, Peter Locke (co-chairman of the Company and
Kushner-Locke) personally loaned to the Company amounts aggregating
approximately $397,000 (gross of any repayments which occurred during such
period). The loans with interest at 10% per annum were repaid in full. In
addition, the Company paid approximately $40,000 in consulting fees and
interest to Mr. Locke for services rendered through December 31, 1997.
From November 1997 to December 1998, Kushner-Locke advanced funds to the
Company of approximately $2,156,000, net of repayments. As of December 31,
1998, advanced funds, interest and administrative services were approximately
$2,156,000, $84,000 and $300,000, respectively, of the $2,540,000 note due
Kushner-Locke.
The Company loaned approximately $41,000 in 1995, $176,000 in 1996 and
$32,000 in 1997, to an existing stockholder and co-founder (the "Stockholder").
The Company received repayments of approximately $5,000 in 1995 and $3,000 in
1996 from Stockholder. In June 1997, the Stockholder personally assumed the
Company's obligations under a $296,000 promissory note payable to a former
stockholder (the "Related Loan"). In consideration for the Stockholder's
assumption of the Company's obligations under the Stockholder Loan, the prior
outstanding amounts loaned to this Stockholder were repaid in full and an
amount payable to Stockholder was established to the extent the assumption of
the Related Loan exceeded loans made to the Stockholder. In September 1998, in
connection with the Company's amended and restated employment agreement with
the Stockholder, the Company agreed to assume the Stockholder's obligations on
the Related Loan. The assumption resulted in a $296,000 compensation charge to
operations for the year ended December 31, 1998. As of December 31, 1998, the
Company owed the Stockholder approximately $42,000 bearing no interest and
payable in 38 equal monthly installments of approximately $1,100.
The Company borrowed approximately $70,000 in 1995, $143,000 in 1996 and
$22,000 in 1997 from a former stockholder/executive officer. The Company repaid
approximately $24,000 in 1995, $108,000 in 1996, $32,000 in 1997 and $3,000 in
1998. As of December 31, 1998 the Company owed approximately $68,000 at
December 31, 1998. The Company entered into a 24 month consulting agreement
with this former stockholder providing for payment of $2,000 per month. The
agreement provides for 10 hours of consulting services to the Company per week
and expires December 1999.
An affiliate of a former stockholder/executive officer of the Company lent
to the Company $50,000 in December 1996 and $50,000 in May 1997, bearing
interest at 20% per annum, payable in six monthly
F-14
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
installments of $10,000 each (including interest). The Company subsequently
defaulted in its obligations under these notes. On January 2, 1998, the notes
were restructured providing for the payment of $120,000, including all past and
future interest, in 36 equal monthly installments of approximately $3,333 each,
beginning on January 15, 1998, and guaranteed by Kushner-Locke. As of December
31, 1998, the Company owed approximately $70,000 under this note.
Related-Party Guarantees
In June 1998, the Company became a guarantor of Kushner-Locke's $60,000,000
Credit, Security, Guaranty, and Pledge Agreement ("credit facility") with The
Chase Manhattan Bank ("Chase"). In connection with the credit facility, the
Company granted to Chase a security interest in all the assets of the Company.
Chase was also granted a security interest in the common stock of the Company
held by Kushner-Locke.
Kushner-Locke is a guarantor of certain related-party notes payable not to
exceed $68,000 and certain media buying obligations not to exceed approximately
$837,000. As of December 31, 1998, the Company's obligations on these related-
party notes payable and media buying obligation were approximately $70,000 and
$896,000, respectively. Kushner-Locke is a guarantor of distribution and
marketing agreements with certain Internet companies. As of December 31, 1998,
the minimum non-cancelable fees under these agreements, subject to guarantee by
Kushner-Locke, are approximately $3,000,000.
A former stockholder of the Company has guaranteed various computer and
office equipment lease obligations of the Company.
Administrative Services Agreement
Effective July 1998, the Company entered into an Administrative Services
Agreement with Kushner-Locke, which provides that Kushner-Locke will provide
administrative services to US SEARCH, including human resources, legal
services, accounting services and certain management services, as well as
executive services, through June 1999. In connection with this agreement, the
Company agreed to pay to Kushner-Locke a monthly fee of $35,000, which may be
decreased in certain circumstances. Approximately $210,000 were billed to the
Company under this agreement for the year ended December 31, 1998.
Approximately $90,000 was billed to the Company in connection with services
rendered by Kushner-Locke prior to entering into the Administrative Services
Agreement. As a result, a total of approximately $300,000 was billed to the
Company in connection with services rendered by Kushner-Locke in 1998.
13. Stock Options And Warrants:
Stock Incentive Plan
In July 1998, the Board adopted, and the stockholders of the Company
approved, the 1998 Stock Incentive Plan (the "1998 Plan") in order to attract
and retain employees (including officers and employee directors), directors and
independent contractors, and consultants to the Company. An aggregate of 2,868
shares of common stock, subject to adjustment for stock splits, stock dividends
and similar events, has been authorized for issuance upon exercise of options,
stock appreciation rights ("SARs"), restricted stock awards ("restricted
awards"), and performance share awards ("performance awards").
The 1998 Plan provides for the issuance of nonqualified and incentive stock
options to employees, (including officers and employee directors), directors
and independent contractors, and consultants to the Company. Incentive stock
options may not be granted at less than 100% of the fair market value of the
Company's common stock on the date of grant (110% if granted to an employee who
owns 10% or more of the
F-15
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
common stock). Options vest in accordance with the award agreement and
generally expire 10 years after the award date (5 years if granted to an
employee who owns 10% or more of the common stock).
The 1998 Plan provides for the issuance of SARs concurrently or
independently with the grant of options. SARs granted concurrently with an
option vest according to the option terms. SARs granted independently of any
option vest according to the award agreement.
The 1998 Plan provides for the issuance of restricted awards or performance
awards. Participants of restricted awards are entitled to receive dividends and
vote whether or not vested. Restricted awards are nontransferable until vested
and the terms of the restricted awards are determined on the grant date. The
terms of performance awards are determined at the date of grant.
In the event a holder of an option, SAR, restricted award, or performance
award ceases to be employed by the Company: all unvested options and SARs are
forfeited, all vested options and SARs may be exercised within a period not to
exceed 12 months, all vested SARs granted independently of options are
exercisable in accordance with the award agreement, all unvested restricted and
performance awards are forfeited, and all vested restricted and performance
awards are exercisable in accordance with the award agreement.
Options
No stock options were granted as of December 31, 1998.
Warrants
In September 1998, in consideration of Kushner-Locke's (i) prior advances of
capital to the Company, (ii) provision of certain administrative services to
the Company and (iii) prior provision of certain guarantees on behalf of the
Company, the Company granted to Kushner-Locke warrants to purchase 500 shares
of the Company's common stock at an aggregate exercise price of $5.00. The
warrants are exercisable between September 14, 1998 and the earlier of (i) five
days prior to the pricing of the Company's stock in connection with an initial
public offering; or (ii) sale of all or substantially all of the assets of the
Company, or any consolidation, merger or reorganization, as defined; or (iii)
September 14, 2008. In September 1998, the Company recorded a charge of
$1,190,000 representing the fair value of the warrants at the date of grant.
14. Income Taxes:
Prior to November 22, 1997 (termination of the S Corporation election), the
Company elected to file its income tax returns under the S Corporation
provisions of the Internal Revenue Code and for California Franchise tax
purposes. In accordance with the Federal income tax provisions, corporate
earnings flow to, and are taxed solely at, the stockholder level. Under the
provisions of the California Franchise tax law, S Corporation earnings are
subject to a reduced state income tax rate (minimum $800) with the remainder
taxed at the individual shareholder level.
The provision for income taxes reflects the minimum California Franchise tax
for 1996, 1997 and 1998. From the date the Company was founded until November
21, 1997, the Company operated as an S Corporation.
Since November 22, 1997, the Company has been subject to corporate taxation
as a C Corporation.
For the period of November 22, 1997 through December 31, 1998, the Company
had a net operating loss. Due to the Company's loss history, management
believes a valuation allowance is required against the net deferred tax asset.
F-16
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred taxes consisted of the following at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 38,000 $ 1,375,000
Allowance for doubtful accounts.................... 74,000 26,000
Accounts payable and accrued liabilities........... 634,000 2,001,000
--------- -----------
Total deferred tax assets........................ 746,000 3,402,000
Less, Valuation allowance.......................... (661,000) (3,343,000)
--------- -----------
Net deferred tax assets.......................... 85,000 59,000
Deferred tax liabilities:
Other.............................................. (76,000) (59,000)
Depreciation and amortization...................... (9,000) --
--------- -----------
Net deferred tax liabilities..................... (85,000) (59,000)
--------- -----------
Net deferred tax................................. $ -- $ --
========= ===========
</TABLE>
As of December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $3,464,000 and $3,536,000, respectively.
The federal net operating loss carryforwards will begin to expire in 2017, and
the state net operating loss carryforwards will begin to expire in 2002. The
Company's ability to utilize net operating loss carryforwards may be limited in
the event that a change in ownership, as defined in the Internal Revenue Code,
occurs in the future.
The Company's effective tax rate for the fiscal year ended December 31, 1997
and 1998 differ from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Tax provision at the statutory rate............................ (34%) (34%)
State taxes, net of federal benefit............................ -- (6%)
Net operating loss benefit..................................... 34% 40%
----- -----
-- --
===== =====
</TABLE>
15. Supplemental Cash Flow Disclosure:
Supplemental cash flow disclosure is comprised of:
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest...................................... $62,000 $106,000 $195,000
Income taxes.................................. 1,000 1,000 1,000
</TABLE>
Capital lease obligations of $159,000, $1,900, and $30,000 were incurred
during the years ended December 31, 1996, 1997 and 1998, respectively, for the
purchase of property and equipment (see Note 7).
During the year ended December 31, 1997, a shareholder loan from the Company
in the amount of $234,000 was extinguished through his personal assumption of a
$296,000 notes payable of the Company. In the year ended December 31, 1998 the
Company re-assumed the debt from the shareholder (see Note 12).
F-17
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Trade accounts payable in the amount of $637,000 were converted to notes
payable in the year ended December 31, 1998.
16. Subsequent Events (Unaudited):
Lines of Credit
In March 1999, the Company repaid all principal and interest then due to
Comerica under the Credit Agreement (see Note 8).
Related-Party Convertible Subordinated Notes:
In January 1999, Kushner-Locke agreed to provide a credit facility up to
$5,500,000 of bridge financing to the Company in the form of convertible
subordinated notes ("Notes"). The Notes will bear interest at 10% per annum and
mature on the earlier of December 31, 1999 or on the date the Company completes
a private placement or initial public offering raising gross proceeds of at
least $10,000,000. The Notes are convertible, at the option of Kushner-Locke,
in whole or in part, into common stock at the rate of one share of common stock
per $2,000 of principal and/or accrued and unpaid interest of the Notes at any
time prior to maturity. The Notes will automatically convert into shares of
common in the event the Company does an initial public offering. The Notes
include a 10% origination fee totaling $550,000 payable to Kushner-Locke for
providing the credit facility. Notes payable to Kushner-Locke of $1,200,000
outstanding as of December 31, 1998 were converted to Notes in January 1999.
Warrants
In January 1999, the Company granted Kushner-Locke warrants to purchase (i)
500 shares of common stock at an exercise price of $2,500 per share and (ii)
500 shares of common stock at an exercise price of $3,000 per share of common
stock. The warrants are exercisable at the option of the holder between January
7, 1999 and the earlier of (i) five days prior to the pricing of the Company's
stock in connection with an initial public offering; or (ii) sale of all or
substantially all of the assets of the Company or any consolidation, merger or
reorganization, as defined; or (iii) January 7, 2009.
Options
During the first quarter ended March 31, 1999, under the 1998 Plan the
Company granted 1,415 options to purchase shares of common stock to officers
and employees, of the Company. The options were issued at exercise prices
ranging from $2,807.02 to $5,161.29 per share of common stock, vesting over two
to four years and expiring in 10 years from date of the grants.
In February 1999, the Company adopted the 1999 Non-employee Directors' Stock
Option Plan and reserved 350 shares of common stock for issuance thereunder.
Under this plan, five non-employee directors were each granted 39 options to
purchase common stock at an exercise price of $4,032.80 per common share. The
options vest over three years and have a term of 10 years.
Employment Agreements
In February and March 1999, the Company entered into four employment
agreements with the new President/Chief Executive Officer and three other
officers. The agreements provide for base salaries ranging from $150,000 to
$250,000, eligibility for performance bonuses and severance payments.
F-18
<PAGE>
US SEARCH CORP.COM
NOTES TO FINANCIAL STATEMENTS--(Continued)
Distribution and Marketing Agreements
In March 1999, the Company entered into a distribution and marketing
agreement with an internet company. Pursuant to the agreement which is for one
year commencing in March 1999, with a renewal option of one additional year,
the Company will be the exclusive public records reseller on the internet
company's network.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that con-
tained in this prospectus. We are offering to sell, and seeking offers to buy,
shares of common stock only in jurisdictions where offers and sales are per-
mitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this pro-
spectus or of any sale of the common stock. In this prospectus, references to
"US SEARCH," "we," "us," and "our" refer to US SEARCH Corp.com, including its
predecessor.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Information........................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 29
Management............................................................... 41
Certain Relationships and Related Transactions........................... 50
Principal and Selling Stockholders....................................... 53
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 56
Underwriting............................................................. 58
Legal Matters............................................................ 60
Experts.................................................................. 60
Additional Information................................................... 60
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until , 1999 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO TO COME]
[LOGO OF CONCENTRIC NETWORK CORPORATION APPEARS HERE]
Shares
Common Stock
------------
PROSPECTUS
------------
Bear, Stearns & Co. Inc.
BancBoston Robertson Stephens
Wit Capital Corporation
as e-Manager
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the distribution of the common stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee...................................................
NASD Filing Fee........................................................
Nasdaq National Market Filing Fee......................................
Blue Sky Fees and Expenses.............................................
Accounting Fees........................................................
Legal Fees and Expenses................................................
Transfer Agent and Registrar Fees......................................
Printing and Engraving.................................................
Miscellaneous..........................................................
-----
Total................................................................ $ *
=====
</TABLE>
- ----------
* To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation, filed as Exhibit 3.1 to the
Registration Statement, provides that directors of the Registrant shall not be
personally liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director, to the fullest extent permitted by
the Delaware General Corporation Law. The Registrant's Bylaws, filed as Exhibit
3.2 to the Registration Statement, provide for indemnification of officers and
directors to the full extent and in the manner permitted by Delaware law.
Section 145 of the Delaware General Corporation Law makes provision for such
indemnification in terms sufficiently broad to cover officers and directors
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act").
The Registrant intends to enter into indemnification agreements with each
director and certain officers which provide indemnification under certain
circumstances for acts and omissions which may not be covered by any directors'
and officers' liability insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since March 31, 1996, the Registrant has sold and issued the following
unregistered securities:
(1) On September 14, 1998, the Registrant issued a warrant to purchase
up to 500 shares of Common Stock to The Kushner-Locke Company at an
exercise price of $0.01 per share. This was in consideration of (a) prior
advances of capital to US SEARCH, (b) provision of certain personnel and
services to US SEARCH and (c) prior provision of certain guarantees on
behalf of US SEARCH.
(2) On January 7, 1999, the Registrant issued 10% convertible
subordinated notes for up to $5,500,000 to The Kushner-Locke Company
convertible into shares of Common Stock at a conversion price of $2,000 per
share.
II-1
<PAGE>
(3) On January 7, 1999, the Registrant issued a warrant to purchase up
to 1000 shares of Common Stock to The Kushner-Locke Company at an exercise
price of $2,500 for the first 500 shares, and $3,000 for the next 500
shares. This was in consideration for Kushner-Locke agreeing to provide us
advances of up to $5,500,000.
The issuances of securities in the transactions described in paragraphs (1),
(2) and (3) above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2). The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the securities issued in such transactions. All recipients either received
adequate information about the Registrant or had access, through employment or
other relationships with the Registrant, to such information.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 Bylaws
4.1* Form of Common Stock Certificate
4.2 Warrant to purchase up to 500 shares of Common Stock, dated September
14, 1998, issued by US SEARCH to The Kushner-Locke Company
4.3 10% Convertible Subordinated Notes for up to $5,500,000, dated January
7, 1999, issued by US SEARCH to The Kushner-Locke Company
4.4 Warrant to purchase up to 1,000 shares of Common Stock, dated January
7, 1999, issued by US SEARCH to The Kushner-Locke Company
5.1* Opinion of Cooley Godward llp
10.1 Form of Indemnity Agreement between US SEARCH and its directors and
officers
10.2 1998 Amended and Restated Stock Incentive Plan
10.2.1 Form of 1998 Stock Incentive Plan Stock Option Award Agreement between
US SEARCH and its employees, directors, and consultants
10.3 1999 Non-Employee Directors' Stock Option Plan
10.3.1 Form of 1999 Non-Employee Directors' Stock Option Plan Nonstatutory
Stock Option between US SEARCH and its non-employee directors
10.3.2 Form of 1999 Non-Employee Directors' Stock Option Plan Notice of
Exercise between US SEARCH and its non-employee directors
10.4 Standard Office Lease--Gross, dated January 24, 1996, between US SEARCH
and Daishin U.S.A. Co., Ltd.
10.4.1 Addendum to Standard Lease--Option(s) to Extend, dated January 24,
1996, between US SEARCH and Daishin U.S.A. Co., Ltd.
10.5 Amended and Restated Employment Agreement, dated September 14, 1998,
between US SEARCH and Nicholas Matzorkis
10.6 Employment Agreement, dated February 3, 1999, between US SEARCH and C.
Nicholas Keating, Jr.
10.7 Employment Agreement, dated March 18, 1999, between US SEARCH and
William G. Langley
10.8 Employment Agreement, dated March 17, 1999, between US SEARCH and
Robert J. Richards
10.9 Employment Agreement, dated March 18, 1999, between US SEARCH and Meg
Shea-Chiles
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.10 Administrative Services Agreement, dated July 1, 1998, between The
Kushner-Locke Company and US SEARCH
10.11+ Addendum to Lycos, Inc. Advertising Contract, dated March 1, 1999,
between US SEARCH and Lycos, Inc.
10.11.1+ Lycos, Inc. Advertising Contract, dated February 1, 1999, between
Lycos, Inc. and US SEARCH
10.12+ Amended and Restated Content Provider Agreement, dated as of August
24, 1998, between InfoSpace, Inc., US SEARCH and The Kushner-Locke
Company (the "InfoSpace Agreement")
10.13 Settlement Agreement, dated September 14, 1998, by and among the
Kushner-Locke Company, Nicholas Matzorkis and US SEARCH.
10.14 Shareholders' Agreement dated September 14, 1998, between the
Kushner-Locke Company and Nicholas Matzorkis.
10.15*+ Amendment to the InfoSpace Agreement dated March 15, 1999
23.1* Consent of PricewaterhouseCoopers LLP
23.2* Consent of Cooley Godward llp (included in Exhibit 5.1)
24.1 Power of Attorney (See signature pages)
27.1 Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment
+ Confidentiality requested with respect to certain portions
(b) Financial Statement Schedules
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
Item 17. Undertakings
A. The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf, by the
undersigned, thereunto duly authorized, in the City of Beverly Hills, State of
California, on April 12, 1999.
US SEARCH Corp.com
/s/ C. Nicholas Keating, Jr.
By: _________________________________
C. Nicholas Keating, Jr.
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints C. Nicholas Keating, Jr. and William G. Langley,
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement, and to sign any registration statement for the same
offering covered by this registration statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933,
and all post-effective amendments thereto, and to file the same, with all
exhibits thereto in all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ C. Nicholas Keating, Jr. President, Chief Executive April 12, 1999
______________________________________ Officer and Director
C. Nicholas Keating, Jr. (Principal Executive
Officer)
/s/ William G. Langley Vice President, Chief April 12, 1999
______________________________________ Financial Officer
William G. Langley (Principal Financial
Accounting Officer)
/s/ Peter Locke Director April 12, 1999
______________________________________
Peter Locke
/s/ Donald Kushner Director April 12, 1999
______________________________________
Donald Kushner
/s/ Nicholas Rockefeller Director April 12, 1999
______________________________________
Nicholas Rockefeller
/s/ Russell I. Pillar Director April 12, 1999
______________________________________
Russell I. Pillar
/s/ Harry B. Chandler Director April 12, 1999
______________________________________
Harry B. Chandler
/s/ Alan C. Mendelson Director April 12, 1999
______________________________________
Alan C. Mendelson
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation
3.2 Bylaws
4.1* Form of Common Stock Certificate
4.2 Warrant to purchase up to 500 shares of Common Stock, dated
September 14, 1998, issued by US SEARCH to The Kushner-Locke
Company
4.3 10% Convertible Subordinated Notes for up to $5,500,000, dated
January 7, 1999, issued by US SEARCH to The Kushner-Locke Company
4.4 Warrant to purchase up to 1,000 shares of Common Stock, dated
January 7, 1999, issued by US SEARCH to The Kushner-Locke Company
5.1* Opinion of Cooley Godward llp
10.1 Form of Indemnity Agreement between US SEARCH and its directors
and officers
10.2 1998 Amended and Restated Stock Incentive Plan
10.2.1 Form of 1998 Stock Incentive Plan Stock Option Award Agreement
between US SEARCH and its employees, directors, and consultants
10.3 1999 Non-Employee Directors' Stock Option Plan
10.3.1 Form of 1999 Non-Employee Directors' Stock Option Plan
Nonstatutory Stock Option between US SEARCH and its non-employee
directors
10.3.2 Form of 1999 Non-Employee Directors' Stock Option Plan Notice of
Exercise between US SEARCH and its non-employee directors
10.4 Standard Office Lease--Gross, dated January 24, 1996, between US
SEARCH and Daishin U.S.A. Co., Ltd.
10.4.1 Addendum to Standard Lease--Option(s) to Extend, dated January 24,
1996, between US SEARCH and Daishin U.S.A. Co., Ltd.
10.5 Amended and Restated Employment Agreement, dated September 14,
1998, between US SEARCH and Nicholas Matzorkis
10.6 Employment Agreement, dated February 3, 1999, between US SEARCH
and C. Nicholas Keating, Jr.
10.7 Employment Agreement, dated March 18, 1999, between US SEARCH and
William G. Langley
10.8 Employment Agreement, dated March 17, 1999, between US SEARCH and
Robert J. Richards
10.9 Employment Agreement, dated March 18, 1999, between US SEARCH and
Meg Shea-Chiles
10.10 Administrative Services Agreement, dated July 1, 1998, between The
Kushner-Locke Company and US SEARCH
10.11+ Addendum to Lycos, Inc. Advertising Contract, dated March 1, 1999,
between US SEARCH and Lycos, Inc.
10.11.1+ Lycos, Inc. Advertising Contract, dated February 1, 1999, between
Lycos, Inc. and US SEARCH
10.12+ Amended and Restated Content Provider Agreement, dated as of
August 24, 1998, between InfoSpace, Inc., US SEARCH and The
Kushner-Locke Company (the "InfoSpace Agreement")
10.13 Settlement Agreement, dated September 14, 1998, by and among the
Kushner-Locke Company, Nicholas Matzorkis and US SEARCH.
10.14 Shareholders' Agreement dated September 14, 1998, between the
Kushner-Locke Company and Nicholas Matzorkis.
10.15*+ Amendment to the InfoSpace Agreement dated March 15, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
23.1* Consent of PricewaterhouseCoopers LLP
23.2* Consent of Cooley Godward llp (included in Exhibit 5.1)
24.1 Power of Attorney (See signature pages)
27.1 Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment
+ Confidentiality requested
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
US SEARCH CORP.COM
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is US SEARCH Corp.com
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent and the name
of the registered agent of the corporation in the State of Delaware at such
address is the National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is 41,000,000
(forty one million) shares. Forty million (40,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). One million
(1,000,000) shares shall be Preferred Stock, each having a par value of one-
tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1.
<PAGE>
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering of the Common Stock of the Company to the
public pursuant to an effective registration statement under the Securities Act
of 1933, as amended (the "1933 Act") (the "Initial Public Offering"), the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3.
A. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, any
individual director or directors may be removed without cause by the holders of
a majority of the voting power of the corporation entitled to vote at an
election of directors.
B. Subject to any limitation imposed by law, any individual
director or directors may be removed with cause by the holders of a majority of
the voting power of the corporation entitled to vote at an election of
directors.
2.
<PAGE>
4.
A. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled either by (i) the affirmative vote of a
majority of the directors then in office, even though less than a quorum of the
Board of Directors or (ii) by the affirmative vote of the holders of a majority
of the voting power of all then-outstanding shares of voting stock of the
corporation entitled to vote at an election of directors. Any director elected
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified.
B. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least the majority of the voting power of all of the then-outstanding shares of
the voting stock of the corporation entitled to vote on such matter. The Board
of Directors shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering and following the closing of
the Initial Public Offering no action shall be taken by the stockholders by
written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
3.
<PAGE>
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least the majority of the voting power of all of the then-
outstanding shares of the voting stock entitled to vote on such matter, voting
together as a single class, shall be required to alter, amend or repeal Articles
V, VI, and VII.
VIII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
Tomas C. Tovar Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
IN WITNESS WHEREOF, this Certificate has been subscribed this 9th day of
April, 1999 by the undersigned who affirms that the statements made herein are
true and correct.
/s/ Tomas C. Tovar
--------------------------------------------
TOMAS C. TOVAR
Sole Incorporator
4.
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
US SEARCH CORP.COM
(A DELAWARE CORPORATION)
<PAGE>
BYLAWS
OF
US SEARCH CORP.COM
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(A) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders:
(i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or
at the
1
<PAGE>
direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5.
(B) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any,
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on whose behalf the proposal is made; and (C) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they appear on
the corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such stockholder
or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of the proposal, at least the percentage of the
corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient number of holders
of the corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
(C) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(D) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(E) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(F) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
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(G) Notwithstanding the foregoing provisions of this Section 5,
the provisions set forth in Sections 5(b), 5(c), 5(d) and 5(e) shall not apply
until after the closing of the initial public offering of the Common Stock of
the Company to the public pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act") (the "Initial Public
Offering"). Prior to the closing of the Initial Public Offering, the provisions
of Section 5(h) below shall apply.
(H) Prior to the closing of the Initial Public Offering, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than the
close of business on the ninetieth (90th) day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or, in the event public announcement of the date of such annual
meeting is first made by the corporation fewer than seventy (70) days prior to
the date of such annual meeting, the close of business on the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made by the corporation. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding
the foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholders' meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (h). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (h), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
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SECTION 6. SPECIAL MEETINGS.
(A) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), (iv) prior to the closing of the Initial Public
Offering, by the holders of shares entitled to cast not less than ten percent
(10%) of the votes at the meeting, or (v) after the closing of the Initial
Public Offering, by the holders of shares entitled to cast not less than fifty
(50%) of the votes at the meeting, and shall be held at such place, on such
date, and at such time as the Board of Directors, shall fix.
(B) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(C) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no
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event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above. The foregoing provisions of this Section 5(c) shall not apply until after
the closing of the Initial Public Offering.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the
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chairman of the meeting or by the vote of a majority of the shares casting
votes. When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
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SECTION 13. ACTION WITHOUT MEETING.
(A) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(B) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(C) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written consent has been given in accordance with
Section 228 of the Delaware General Corporation Law.
(D) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(A) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(B) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if
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any, the chairman of the meeting shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation and
their duly authorized and constituted proxies and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the time fixed
for the commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the polls
for balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in
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the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
SECTION 18. VACANCIES.
(A) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled either by (i) the
affirmative vote of a majority of the directors then in office, even though less
than a quorum of the Board of Directors or (ii) by the affirmative vote of the
holders of a majority of the voting power of all then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors.
Any director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been elected
and qualified. A vacancy in the Board of Directors shall be deemed to exist
under this Bylaw in the case of the death, removal or resignation of any
director.
(B) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law.
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL.
(A) Subject to any limitations imposed by applicable law, the
Board of Directors or any director may be removed from office at any time
without cause by the affirmative vote of the holders of a majority of the voting
power of all then-outstanding shares of voting stock of the corporation entitled
to vote at an election of directors.
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(B) Subject to any limitation imposed by law, any individual
director or directors may be removed with cause by the affirmative vote of a
majority of the voting power of the corporation entitled to vote at an election
of directors.
SECTION 21. MEETINGS.
(A) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(B) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(C) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(D) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(E) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(F) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a
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written waiver of notice. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(A) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(B) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(A) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law
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to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(B) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(C) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(D) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
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SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President (if a director), or if the President is absent, the most
senior Vice President (if a director), or, in the absence of any such person, a
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(A) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(C) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform
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other duties commonly incident to his office and shall also perform such other
duties and have such other powers, as the Board of Directors shall designate
from time to time.
(D) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(E) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(F) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be
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necessary to make it effective. Any resignation shall be without prejudice to
the rights, if any, of the corporation under any contract with the resigning
officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the
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President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(A) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(B) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law.
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SECTION 37. FIXING RECORD DATES.
(A) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(B) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(C) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such
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action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting.
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Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation and applicable
law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(A) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law or any other applicable law; provided, however, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and officers; and, provided, further, that the
corporation shall not be required to indemnify any director or officer in
connection with any proceeding (or part thereof) initiated by such person unless
(i) such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the corporation, (iii)
such indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the Delaware General
Corporation Law or any other applicable law or (iv) such indemnification is
required to be made under subsection (d).
(B) EMPLOYEES AND OTHER AGENTS. The corporation shall have power
to indemnify its employees and other agents as set forth in the Delaware General
Corporation Law or any other applicable law. The Board of Directors shall have
the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.
(C) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he
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is or was a director or officer, of the corporation, or is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or officer in connection with such proceeding upon
receipt of an undertaking by or on behalf of such person to repay said amounts
if it should be determined ultimately that such person is not entitled to be
indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(D) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law or any other applicable law for the corporation to indemnify the
claimant for the amount claimed. In connection with any claim by an officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law or any other
applicable law, nor an actual determination by the
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corporation (including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(E) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(F) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(G) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law or any other applicable law, the corporation, upon
approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.
(H) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(I) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law. If this Section 43 shall
be invalid due to the application of the indemnification provisions of another
jurisdiction, then the corporation shall indemnify each director and officer to
the full to the full extent under any other applicable law.
(J) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement,
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arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(A) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
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(B) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(C) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(D) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(E) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(F) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(G) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(H) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such
24
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person during the period between such two consecutive annual meetings, or (ii)
all, and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed addressed
to such person at his address as shown on the records of the corporation and
have been returned undeliverable, the giving of such notice to such person shall
not be required. Any action or meeting which shall be taken or held without
notice to such person shall have the same force and effect as if such notice had
been duly given. If any such person shall deliver to the corporation a written
notice setting forth his then current address, the requirement that notice be
given to such person shall be reinstated. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least the majority of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote
on such matter. The Board of Directors shall also have the power to adopt,
amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
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EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES UNDERLYING THIS
WARRANT HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WITH ANY SECURITIES COMMISSION
OF ANY STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. THEY MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
WARRANT TO PURCHASE
COMMON STOCK
800 U.S. SEARCH
(A CALIFORNIA CORPORATION)
Dated: September 14, 1998
THIS CERTIFIES THAT, for value received, THE KUSHNER-LOCKE COMPANY
(Kushner-Locke), or its permitted registered assigns (the "Holder"), is the
owner of warrants (the "Kushner-Locke Warrant") to purchase from 800-U.S.
SEARCH, a California corporation (the "Company"), during the Exercise Period (as
defined in subparagraph 1 (a) below), and at the Warrant Price (as defined in
subparagraph 1 (a) below), up to 500 shares of the Company's common stock
("Common Stock"), no par value per share (the shares of Common Stock underlying
this Kushner-Locke Warrant are hereinafter referred to as "Shares").
This Kushner-Locke Warrant is issued in consideration of Kushner-Locke's
(i) prior advances of capital to the Company through the date hereof, (ii) prior
provision of personnel and services to the Company, and (iii) Kushner-Locke's
prior provision of certain guarantees on behalf of the Company.
1. EXERCISE OF THE KUSHNER-LOCKE WARRANT.
(A) The rights represented by this Kushner-Locke Warrant shall be
exercisable at the Warrant Price and during the Exercise Period upon the terms
and subject to the conditions as set forth herein:
(I) Between September 14, 1998 and the earlier of (l) five (5)
days prior to the pricing of the Company's Common Stock in connection with the
initial public offering (the "IPO"), (2) a sale of all or substantially all of
the assets or any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in
which the stockholders of the Company immediately prior to such sale,
consolidation, merger or reorganization, own less then fifty percent (50%) of
the Company's voting power immediately after such sale, consolidation, merger or
reorganization, or any transaction or series of related transactions to which
the Company is a party in which in excess of fifty percent (50%) of the
Company's voting power is transferred, excluding any sale, consolidation, merger
or reorganization effected exclusively to change the domicile of the Company (an
"Acquisition") or (3) 5:00 p.m. Los Angeles, California time on September 14,
2008, inclusive (the "Exercise Period"), the Holder shall have the option to
purchase any and all
1.
<PAGE>
of the Shares hereunder at an exercise price of $0.01 per Share (the "Warrant
Price"). This Kushner-Locke Warrant shall expire effective at the earlier of (x)
the consummation of the IPO, (y) the consummation of an Acquisition and (z) 5:00
p.m., Los Angeles, California time September 14, 2008. Any exercise of this
Kushner-Locke Warrant prior to the IPO shall be effective upon the consummation
of the IPO unless otherwise specified in writing by the Holder thereof.
(B) The rights represented by this Kushner-Locke Warrant may be
exercised at any time within the Exercise Period, in whole or in part, by (i)
the surrender of this Kushner-Locke Warrant (with the Subscription Form at the
end hereof properly completed and executed) at the principal executive office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder then appearing
on the books of the Company); and (ii) payment to the Company of the Warrant
Price then in effect for the number of Shares specified in the above-mentioned
Subscription Form; provided, however, that if this Kushner-Locke Warrant is
exercised prior to, and in contemplation of, the IPO, the Warrant Price shall be
payable within two business days after the consummation of the IPO from proceeds
from the IPO otherwise payable to the Holder. This Kushner-Locke Warrant shall
be deemed to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the date this Kushner-Locke
Warrant is surrendered, along with the delivery of any and all other required
documents, other than payment of the Warrant Price. The person or persons in
whose name or names the certificates for the Shares shall be issuable upon such
exercise shall be deemed the holder or holders of record of such Shares at that
time and date. The Shares so purchased shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after the Company
receives the items required to be delivered by this Paragraph 1 to evidence
Kushner-Locke's exercise of its rights represented by this Kushner-Locke Warrant
and the applicable Warrant Price. Notwithstanding anything in this Kushner-Locke
Warrant to the contrary, if the Holder exercises any portion of this Kushner-
Locke Warrant prior to an expected date of consummation of an IPO and such IPO
is not so consummated, the Holder shall have the right to revoke such exercise
of this Kushner-Locke Warrant.
(C) In lieu of exercising this Kushner-Locke Warrant or any portion
thereof, the Holder or Holders, if applicable, shall have the right to convert
during the Exercise Period the Kushner-Locke Warrant, or any portion thereof,
into Shares by executing and delivering to the Company, at its principal
executive office, a duly executed Subscription Form, specifying the portion of
the Kushner-Locke Warrant to be converted, and accompanied by the surrender of
the Kushner-Locke Warrant. The person or persons in whose name or names the
certificates for the Shares shall be issuable upon such conversion shall be
deemed the holder or holders of record of such Shares at that time and date. The
number of Shares to be issued upon such conversion shall be computed using the
following formula:
X = (P)(Y) (A-B)/A
where
X = the number of Shares to be issued to the Holder for the
percentage of the Kushner-Locke Warrants being converted
2.
<PAGE>
P = the percentage of the Kushner-Locke Warrants being converted
Y = the total number of Shares then issuable upon exercise of
the Kushner-Locke Warrant in full
A = the current market price (as defined below) of one Share
B = the Warrant Price on the date of conversion
"Current market price" per share of Common Stock at any date shall be (a) if the
Company shall have filed and not withdrawn or terminated a registration
statement for the purpose of effecting the IPO of the Common Stock, the initial
price to the public for the Common Stock, or (b) if otherwise, to be reasonably
determined by the Board of Directors of the Company in good faith.
2. RESTRICTIONS ON TRANSFER. This Kushner-Locke Warrant shall not be
transferred, sold, assigned or hypothecated except in compliance with all
applicable state and federal securities laws. Any such assignment shall be
effected by the Holder by (i) completing and executing the transfer form at the
end hereof and (ii) surrendering this Kushner-Locke Warrant with such duly
completed and executed transfer form for cancellation, accompanied by funds
sufficient to pay any applicable transfer tax, if any, at the office or agency
of the Company referred to in Paragraph 1 hereof, accompanied by a certificate
(signed by a duly authorized representative of the Holder), stating that each
transferee agrees to be bound by the terms of this Kushner-Locke Warrant. At
such time the Company shall issue, in the name or names specified by the Holder
(including the Holder, if applicable), a new Kushner-Locke Warrant or Kushner-
Locke Warrants of like tenor and representing in the aggregate rights to
purchase the same number of Shares as are then purchasable hereunder. The Holder
acknowledges that neither this Kushner-Locke Warrant nor the Shares may be
offered or sold except pursuant to an effective registration statement under the
Act or any applicable state securities or blue sky laws, or an opinion of
counsel reasonably satisfactory to the Company that an exemption from
registration under the Act and such state laws is available.
3. COVENANTS OF THE COMPANY.
(A) The Company covenants and agrees that all Common Stock issuable
upon the exercise of this Kushner-Locke Warrant will, upon issuance thereof and
payment therefor in accordance with the terms hereof, be duly and validly
issued, fully paid and nonassessable and no personal liability will attach to
the holder thereof by reason of being such a holder, other than as set forth
herein or provided at law.
(B) The Company covenants and agrees that during the Exercise Period
the Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock to provide for the issuance of shares of Common Stock
upon the exercise of this Kushner-Locke Warrant.
4. NO RIGHTS OF SHAREHOLDER. Except as specifically set forth herein and
except upon the exercise hereof, the Holder shall not, by virtue, hereof, be
entitled to any rights of a shareholder in the Company, whether at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
3.
<PAGE>
5. REGISTRATION RIGHTS.
(A) PIGGYBACK REGISTRATION.
(I) If the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its Common Stock under the Act in connection with a public
offering of such securities from time to time solely for cash (other than a
registration relating to the sale of securities to participants in a Company
stock or similar plan or arrangement for which securities are registered on a
Form S-8 or any successor or similar form, or a registration on Form S-4, or any
successor or similar form or any registration of stock issuable upon a
reclassification, a business combination or acquisition, an exchange of
securities or an exchange offer for securities of the Company or another
entity), the Company shall, at such time, promptly give the Holder written
notice of such registration. Upon the written request of the Holder received by
the Company within ten (10) days after the date of the Company's notice to the
Holder, which request shall state the intended method of disposition of such
shares by the Holder, the Company shall use its reasonable best efforts to cause
to be registered under the Act all of the Common Stock issuable hereunder (the
"Registrable Securities") that the Holder has properly requested to be
registered (a "Piggyback Registration").
(II) In the case of a Piggyback Registration on an underwritten
public offering by the Company, if the managing underwriter reasonably
determines and advises the Company in writing that the inclusion in the
registration statement of all Registrable Securities proposed to be included
would materially interfere with the successful marketing of the securities
proposed to be registered by the Company, then such managing underwriter shall
determine the number of such Registrable Securities to be included in such
registration statement and the number of securities that may be included in such
registration statement shall be allocated (1) first, to the Company, (2) second,
to the Holder (or Holders on a pro rata basis if there are more than one Holder
at such time), and (3) third, to the extent all Registrable Securities have been
included in such registration statement, to any other shareholder of the Company
(other than Holder(s)) on a pro rata basis.
(III) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 5(a) prior to the
effectiveness thereof whether or not any Holder has decided to include
Registrable Securities in such registration; provided, however, that any
reinstatement of such registration or new registration shall be subject to the
provisions of this Section 5(a).
(B) DEMAND REGISTRATION.
(I) The Company agrees that the Holder (or Holders of a
majority or more of the Registrable Securities if there are more than one Holder
at such time) shall have the right once but not more than once (subject to the
last sentence of this Section 5(b)(i)), beginning on the one-year anniversary of
the date the Company consummates its initial public offering of Common Stock,
upon written notice to the Company, to require that the Company prepare and
promptly file with the Securities and Exchange Commission (the "SEC") a
registration statement, as may be required or permitted under the Act, in
connection with the public offering,
4.
<PAGE>
on a time-to-time basis or otherwise, of any or all of the then outstanding
Shares, at the Holder's election (or the election of Holders of not less than
50% of the then outstanding Shares in the event there are more than one Holders
at the time of such initial notice). In connection therewith, the Company shall
be obligated to prepare and file such registration statement, on Form S-3 if
such form is available, within 45 days of receipt of any such initial notice and
shall be further obligated to use its reasonable best efforts, including the
filing of any amendments or supplements thereto, to have any such registration
statement declared effective under the Act and the rules and regulations
promulgated thereunder as soon as practicable after the filing date thereof. The
Company shall also use its reasonable best efforts to keep any such registration
statement, and the accompanying prospectus, effective and current under the Act
at its expense for a period of at least one year after the Holder or Holders of
Registrable Securities, as applicable, are permitted without restrictions,
whether contractually or otherwise, to sell the Registrable Securities or such
earlier period if the Holder or Holders, as applicable, have completed the
distribution of all Registrable Securities under such registration stateroom. If
the Company does not have such registration statement declared effective, or if
it is declared effective but is not kept so effective and current, Holder shall
not be deemed to have exercised its rights under this Section 5(b)(i).
(II) To the extent reasonably requested by the managing
underwriter of an underwritten offering by the Company covered by such
registration statement, the Holder will enter into an underwriting agreement in
a reasonable and customary form, with the managing underwriter which may include
deferring the sale of Shares for a period of up to one hundred eighty (180) days
after the effective date of the registration stateroom, provided that any
selling shareholders (other than the Holders) of the Company who also have
shares included in the registration statement will also defer their sales for a
similar period.
(III) The Company shall not be required to effect a registration
pursuant to this Section 5(b) during the one hundred twenty (120) day period
referred to in this Section 5(b)(iii), if the Company shall furnish to Holder
(or Holders, as the case may be) requesting a registration statement pursuant to
this Section 5(b), a certificate signed by the Chairman of the Board stating
that the Board of Directors of the Company has determined in its good faith
judgment that it would be seriously detrimental to the Company and its
stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the registration set forth above; provided that such right to delay a request
shall be exercised by the Company not more than once in any twelve (12) month
period.
(C) The Company will pay all Registration Expenses (as defined below)
incurred in connection with the Company's registration obligations pursuant to
this Kushner-Locke Warrant, other than underwriting discounts and commissions in
connection with the Registrable Securities. "Registration Expenses" shall
consist of all expenses incurred or incidental to the Company's performance of
or compliance with this Kushner-Locke Warrant, and the reasonable fees and
disbursements of one counsel per registration retained by the record owners of
Registrable Securities then being registered. Registration Expenses shall
include, without limitation, all registration and filing fees, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), printing expenses,
5.
<PAGE>
messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of the Company's officers and employees
performing legal or accounting duties), the fees and expenses incurred in
connection with the listing of such securities on each securities exchange (or
NASDAQ) on which similar securities issued by the Company are then listed, all
fees payable to the National Association of Securities Dealers, Inc. and fees
and disbursements of counsel for the Company and of its independent certified
public accountants (including the expenses of any special audit or "comfort"
letters required by or incident to such performance), securities acts
liabilities insurance and the reasonable fees and expenses of any special
experts retained by the Company in connection with any registration of
Registrable Securities.
6. INDEMNIFICATION; CONTRIBUTION.
(A) Whenever pursuant to Paragraph 5 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company will (i) indemnify and hold harmless each Holder of
the Registrable Securities covered by such registration statement, amendment or
supplement (such Holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, each officer, employee, agent or partner of the
Distributing Holder, each underwriter (within the meaning of the Act) of such
securities, each person, if any, who controls (within the meaning of the Act)
any such underwriter, if applicable, and each officer, employee, agent or
partner of such underwriter against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such underwriter or any
such other person may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any prospectus
constituting a part thereof or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading; and (ii) reimburse the Distributing Holder, such underwriter or
any such other person for any expenses reasonably incurred by the Distributing
Holder, such underwriter or any such other person in connection with
investigating or defending any such losses, claims, damages, liabilities or
actions; provided, however, that the Company will not be liable in any such case
to the extent that (A) any such losses, claims, damages or liabilities arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in said registration statement, said prospectus or said
amendment or supplement in reliance upon and in conformity with information
furnished in writing by such Distributing Holder, any other Distributing Holder
or any such underwriter for use in the preparation thereof, or (B) such losses,
claims, damages or liabilities arise out of or are based upon any actual or
alleged untrue statement or actual or alleged omission made in or from any
registration statement or prospectus, but corrected in any subsequent
registration statement or prospectus, as amended or supplemented, to the extent
such losses, claims, damages or liabilities arose after the date such corrected
registration statement or prospectus was filed with the SEC and delivered to the
applicable Distributing Holder for use in connection with the sale of Common
Stock.
(B) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registrable Securities is filed under the Act, amended or
supplemented, the Distributing Holder
6.
<PAGE>
will (i) indemnify and hold harmless the Company, each of its directors and
officers who have signed said registration statement or such amendments or
supplements thereto, each underwriter (within the meaning of the Act), each
person, if any, who controls (within the meaning of the Act) the Company or any
such underwriter and each officer, employee, agent or partner of such
underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Company, any such underwriter or any such other person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any prospectus constituting a
part thereof, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading, in each case to the extent, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished in writing
by such Distributing Holder for use in the preparation thereof; and (ii)
reimburse the Company, such underwriter or any such other person for any
expenses reasonably incurred by them in connection with investigating or
defending any such losses, claims, damages, liabilities or actions.
(C) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent
prejudiced by such omission.
(D) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense of such action with counsel reasonably satisfactory to such
indemnified party; provided, however, that, the indemnifying party shall not
have the right to assume the defense of such action if the indemnified party
shall have been advised by counsel that there are one or more legal or equitable
defenses available to them which are different from or in addition to those
available to the indemnifying party, or, in the reasonable opinion of counsel to
the indemnified party, counsel for the indemnifying party could not adequately
represent the interests of the indemnified party because such interests could
reasonably be expected to conflict with those of the indemnifying party. If the
indemnifying party is not entitled to assume the defense of a claim, it will not
be obligated to pay the fees and expenses of more than one counsel, and
appropriate local counsel, for the indemnified party with respect to such claim.
(E) CONTRIBUTION.
(I) If the indemnification provided for in this Section 6 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages or liabilities referred to therein, then
the indemnifying party, in lieu of
7.
<PAGE>
indemnifying such indemnified party, shall contribute (on the basis of relative
fault) to the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities. The relative fault of such
indemnifying and indemnified parries shall be determined by reference to, among
other things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a parry as a result of the losses, claims,
damages and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding. Notwithstanding the provisions of this Section
6(e)(i), in no case shall any seller of Registrable Securities be liable or
responsible for any amount in excess of the net proceeds received by such seller
from the sale of the Registrable Securities of such seller which are included in
any registration statement contemplated by this Kushner-Locke Warrant.
(II) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
7. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF SHARES.
(A) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Warrant Price pursuant to the provisions of this Paragraph 7, the number of
Shares issuable upon the exercise of the Kushner-Locke Warrant shall be adjusted
to the nearest full whole number by multiplying a number equal to the Warrant
Price in effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of the Kushner-Locke Warrant immediately prior to such
adjustment and dividing the product so obtained by the then adjusted Warrant
Price.
(B) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no value, or from no par value to par value, or as a
result of a subdivision or combination), or in the case of any consolidation of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
assets or properly of the Company as an entirety or substantially as an
entirety, the Holder shall thereafter have the right, upon exercise of the
Kushner-Locke Warrant, to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Kushner-Locke Warrant immediately prior to
any such events at a price equal to the product of (x) the number of Shares
issuable upon exercise of the Kushner-Locke Warrant and (y) the Warrant Price in
effect immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holder had exercised the
Kushner-Locke Warrant.
8.
<PAGE>
Upon the consummation of any sale of all or substantially all of the assets
of thc Company to, or consolidation with or merger of the Company into, any
person or entity (other than a merger which has, as one of its purposes or
effects, the reincorporation of the Company), all rights under this Kushner-
Locke Warrant shall terminate other than the right of the Holder to receive the
consideration such Holder would have received if it had exercised the Kushner-
Locke Warrant immediately prior to such sale, consolidation or merger, such
right to receive consideration to be net of the applicable Warrant Price for
such Warrant immediately prior to such termination.
(C) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO OUTSTANDING
SECURITIES. In the event that the Company shall at any time after the date
hereof and prior to the exercise in full or expiration of the Kushner-Locke
Warrant declare a dividend (other than a dividend consisting solely of a cash
dividend or distribution payable out of current or retained earnings) or
otherwise distribute to all of the holders of Common Stock any monies, assets,
property, rights, evidences of indebtedness, securities (other than such a cash
dividend or distribution), whether issued by the Company or by another person or
entity, or any other thing of value, the Holder of the unexercised Kushner-Locke
Warrant shall thereafter be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise thereof, to receive, upon the
exercise of such Kushner-Locke Warrant, the same monies, assets, property,
rights, evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution as if the Holder were the owner of the Shares at the time of such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Paragraph 7(c).
(D) SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK. In case the
Company shall at any time after the date hereof and prior to the exercise in
full or expiration of the Kushner-Locke Warrant issue to all the holders of
Common Stock of the Company any rights to subscribe for shares of Common Stock
of the Company, the Holder of the unexercised Kushner-Locke Warrant shall be
entitled, in addition to the shares of Common Stock receivable upon the exercise
of the Kushner-Locke Warrant, to receive such rights at the time such rights are
distributed to the other shareholders of the Company but only to the extent of
the number of shares of Common Stock, if any, for which the Kushner-Locke
Warrant remains exercisable. Notwithstanding anything contained herein to the
contrary, the provisions set forth in this Section 7(d) shall not be interpreted
as applying to options or similar stock purchase rights granted to Eligible
Persons (as defined in the Company's Amended and Restated 1998 Stock Incentive
Plan (the "Plan")) or Non-Employee Directors (as defined in the Company's 1999
Non-Employee Directors' Stock Option Plan (the "Director Plan")) pursuant to the
Plan or the Director Plan.
(E) NOTICE IN EVENT OF DISSOLUTION. In case of the dissolution,
liquidation or winding-up of the Company, all rights under the Kushner-Locke
Warrant shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of such dissolution,
liquidation or winding-up and not later than five (5) days prior to such
effectiveness. Notice of such termination of purchase rights shall be given to
the last registered Holder of the Kushner-Locke Warrant, as the same shall
appear on the books and records of the company, by registered mail at least
thirty (30) days prior to such termination date.
9.
<PAGE>
(F) COMPUTATIONS. The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Paragraph 7, and any certificate setting
forth such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Paragraph 7 absent manifest error
which can only be corrected by such independent public accountants. In addition,
the Chief Financial Officer of the Company may make any computations required by
this Paragraph 7 and any certificate setting forth such computation signed by
the Chief Financial Officer of the Company shall be conclusive evidence of the
correctness of any computation made under this Paragraph 7 absent manifest
error.
(G) SUBDIVISION AND COMBINATION. If the Company shall at any time
after the date hereof subdivide (whether by stock split or otherwise) or combine
(whether by reverse stock split or otherwise) the outstanding shares of Common
Stock, the Warrant Price of the Kushner-Locke Warrant shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination.
8. FRACTIONAL SHARES.
(A) The Company shall not be required to issue fractional shares of
Common Stock on the exercise of this Kushner-Locke Warrant, provided, however,
that if the Holder exercises the Kushner-Locke Warrant in full, any fractional
shares of Common Stock shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock.
9. MISCELLANEOUS.
(A) Notwithstanding anything to the contrary contained in this
Agreement or elsewhere, the Kushner-Locke Warrant cannot be redeemed by the
Company without a written agreement between the Company and the then Holder
thereof.
(B) This Kushner-Locke Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflicts of law principles thereof.
(C) All notices, requests and other communications under this
Kushner-Locke Warrant shall be in writing and shall be deemed to have been
delivered on the third Business Day after having been deposited in the U.S.
mail, registered or certified, postage prepaid; the first Business Day after
having been sent by recognized overnight courier; or when personally delivered;
and, in each case, addressed to the respective parties at the addresses stated
below or to such other changed addresses that the parties may have fixed by
notice in accordance herewith. The term "Business Day" shall mean any day other
than a Saturday, a Sunday or a day on which banking institutions in the City of
Los Angeles, California are authorized by law, regulation or executive order to
remain closed.
10.
<PAGE>
If to a Holder: The address of such Holder as shown
on the books of the Company.
If to the Company: 800-U.S. Search
9701 Wilshire Boulevard, Suite 700
Beverly Hills, California 90212
Attention: Corporate Secretary
Telephone: (310) 553-7000
Facsimile: (310) 786-8349
(D) The Company and Kushner-Locke may from time-to-time supplement or
amend this Kushner-Locke Warrant without the approval of any Holder other than
Kushner-Locke in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to add any other provisions in regard to matters or
questions arising hereunder which the Company and Kushner-Locke may deem
necessary or desirable and which the Company and Kushner-Locke deem not to
materially adversely affect the interests of the Holder, which determination
shall be conclusively evidenced by the execution and delivery of a supplement or
amendment hereto.
(E) All the covenants and provisions of this Kushner-Locke Warrant by
or for the benefit of the Company and the Holder shall bind and inure to the
benefit of their respective successors and assigns hereunder.
(F) Nothing in this Kushner-Locke Warrant shall be construed to give
to any person or corporation other than the Company and Kushner-Locke and any
other registered Holder any legal or equitable right, and this Kushner-Locke
Warrant shall be for the sole and exclusive benefit of the Company and Kushner-
Locke and any other Holder.
11.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Kushner-Locke Warrant to be
signed by its duly authorized officer and this Kushner-Locke Warrant to be dated
September 14, 1998.
800-U.S. SEARCH
By: /s/ Peter Locke
------------------------------------
Peter Locke
President
Agreed, acknowledged and accepted
as of this 14th day of September, 1998.
THE KUSHNER-LOCKE COMPANY
By: /s/ Bruce Lilliston
-------------------------
Bruce Lilliston
President
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date:____________, ___
800-U.S. SEARCH
Attn: President
Ladies and Gentlemen:
[_] The undersigned hereby elects to exercise the warrant issued to it by 800-
U.S. Search (the "Company") and dated ________________, _____ (the
"Warrant") and to purchase thereunder ________________ shares of the Common
Stock of the Company (the "Shares") at a purchase price of
____________________ Dollars ($_______) per share or unit or an aggregate
purchase price of ____________________ Dollars ($_______) (the "Purchase
Price").
[_] The undersigned hereby elects under the provision set forth in Section 1(c)
of the Warrant to convert _________ percent (_______%) of the value of the
Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
aggregate Purchase Price herewith in full in cash or by certified check or wire
transfer, if applicable.
The certificate(s) or other instruments for such shares or units shall be
issued in the name of the undersigned or as otherwise indicated below.
________________________________________
Signature
________________________________________
Name for Registration
________________________________________
________________________________________
________________________________________
Mailing Address
Very truly yours,
________________________________________
By:_____________________________________
Name:
Title:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Kushner-Locke Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the right to purchase _________ shares of Common Stock of 800-U.S. Search
represented by the foregoing Kushner-Locke Warrant, and appoints
____________________ attorney to transfer such rights on the books of 800-U.S.
Search with full power of substitution in the premises.
Dated:_____________________________
___________________________________
(Name of Holder)
___________________________________
(Signature of Holder)
___________________________________
(Address)
___________________________________
(Address)
In the presence of:
___________________________________
___________________________________
*Signature must conform in all respects to the name of registered Holder.
<PAGE>
EXHIBIT 4.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WITH
ANY SECURITIES COMMISSION OF ANY STATE UNDER ANY APPLICABLE STATE SECURITIES OR
BLUE SKY LAWS. THEY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF THOSE SECURITIES LAWS.
800-U.S. SEARCH
No.N-1 Los Angeles, California
January 7, 1999 Up to $5,500,000
10% CONVERTIBLE SUBORDINATED NOTES DUE DECEMBER 31,1999
800-U.S. SEARCH, a California corporation (the "Company"), for value
received, hereby promises to pay to THE KUSHNER-LOCKE COMPANY or permitted
registered assigns (the "Holder") on the earlier of (i) December 31, 1999 or
(ii) 5:00 p.m., California time, on the date one day after the date the Company
consummates a private placement or any other sale of its capital stock raising
gross proceeds of at least $10 million (the earlier date being referred to as
the "Maturity Date"), the aggregate unpaid principal balance of loans made by
Holder to the Company from time to time hereunder as set forth on Schedule A
attached hereto up to $5,500,000 in such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest on the outstanding principal sum
hereof at the rate of ten percent (10%) per annum calculated from the date of
each advance hereunder until the Maturity Date or, if earlier, the date the
Company's obligation with respect to the payment of such principal sum shall be
discharged as herein provided. The principal amount of this 10% Convertible
Subordinated Note Due December 31, 1999 (the "Note"), and all accrued and unpaid
interest due hereunder, shall be payable on the Maturity Date to the Holder
hereof at the office of the Company as hereinafter set forth. In the event that
for any reason whatsoever any interest or other consideration payable with
respect to this Note shall be deemed to be usurious by a court of competent
jurisdiction under the laws of the State of California or the laws of any other
applicable state governing the repayment hereof, then so much of such interest
or other consideration as shall be deemed to be usurious shall be held by the
Holder as security for the repayment of the principal amount hereof and shall
otherwise be waived. In no event shall any interest be due until the Maturity
Date.
1. PREPAYMENT. The principal amount of this Note may be prepaid by the
Company, in whole or in part without premium or penalty, at any time, upon at
least ten (10) days prior written notice; provided, however, that any accrued
and unpaid interest on the amount, if any, of principal prepaid shall be due and
payable at the time of such prepayment. Upon any prepayment of the entire
principal amount of this Note, all accrued and unpaid, interest shall be paid to
the Holder on the date of prepayment.
1.
<PAGE>
2. CONVERSION RIGHT.
(A) The Holder hereof is entitled at any time and from time to time
on or prior to the date that either (i) all obligations under this Note are paid
in full or (ii) the Company consummates an initial public offering of its Common
Stock (an "IPO") to convert all or any portion of the outstanding principal and
interest on this Note into duly and validly issued, fully paid and nonassessable
shares (the "Conversion Shares") of the Company's common stock, no par value
(the "Common Stock") at a conversion price equal to $2,000 of principal amount
of, and/or accrued and unpaid interest amount on, the Note for each share of
Common Stock (the "Conversion Price"). The Conversion Shares shall be issued as
soon as practicable after the receipt by the Company of a written request of
conversion of the Holder hereof in substantially the form attached hereto as
Exhibit "A" and the delivery to the Company of this Note. The Company will
deliver, at such time, a replacement Note evidencing any then outstanding
principal amount of the Note not converted. Any conversion request with respect
to this Note shall be effective upon receipt by the Company at any time prior to
the date set for any prepayment of this Note. The Holder shall provide the
Company with at least five (5) days prior notice if it elects to convert the
Note pursuant to this Section 2(a).
(B) The Company shall not be required to issue fractional shares of
Common Stock on the conversion of this Note, provided, however, that if the
Holder converts this Note in full, any fractional shares of Common Stock shall
be eliminated by rounding any fraction up to the nearest whole number of shares
of Common Stock.
(C) Upon the consummation of an IPO, the outstanding principal of and
interest on this Note shall be converted automatically, without any other action
on behalf of the Holder hereof, into shares of Common Stock based upon the
Conversion Price then in effect. Such conversion shall occur immediately upon
the consummation of the IPO and upon such conversion, the principal balance of
this Note (and any accrued and unpaid interest thereon) which has been so
convened shall be deemed to have been paid in full.
3. ADJUSTMENTS OF CONVERSION PRICE AND NUMBER OF CONVERSION SHARE.
(A) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Conversion Price pursuant to the provisions of this Section 3, the number of
Conversion Shares issuable upon the conversion of this Note shall be adjusted,
subject to subparagraph 3(c), to the nearest full whole number by multiplying a
number equal to the Conversion Price in effect immediately prior to such
adjustment by the number of Conversion Shares issuable upon conversion of this
Note immediately prior to such adjustment and dividing the product so obtained
by the then adjusted Conversion Price.
(B) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no value, or from no par value to par value, or as a
result of a subdivision or combination), or in the case of any consolidation of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in
2.
<PAGE>
the case of a sale or conveyance to another corporation of the assets or
property of the Company as an entirety or substantially as an entirety, the
Holder shall thereafter have the right, upon conversion of this Note, to receive
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if such Holder were the owner of the shares of Common Stock
underlying this Note immediately prior to any such events.
Upon the consummation of any sale of all or substantially all of the assets
of the Company to, or consolidation with or merger of the Company into, any
person or entity (other than a merger which has, as one of its purposes or
effects, the reincorporation of the Company), all conversion rights (but not
repayment rights) under this Note shall terminate other than the right of the
Holder of this Note to receive the consideration such Holder would have received
if it had converted immediately prior to such sale, consolidation or merger.
(C) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO OUTSTANDING
SECURITIES. In the event that the Company shall at any time after the date
hereof and prior to the conversion or payment of this Note in full declare a
dividend (other than a dividend consisting solely of a cash dividend or
distribution payable out of current or retained earnings) or otherwise
distribute to all of the holders of Common Stock any monies, assets, property,
rights, evidences of indebtedness, securities (other than such a cash dividend
or distribution), whether issued by the Company or by another person or entity,
or any other thing of value, the Holder of the unconverted Note shall thereafter
be entitled, in addition to the Conversion Shares or other securities receivable
upon the conversion thereof, to receive, upon the conversion of this Note, the
same monies, assets, property, rights, evidences of indebtedness, securities or
any other thing of value that they would have been entitled to receive at the
time of such dividend or distribution as if the Holder were the owner of the
Conversion Shares at the time of such dividend or distribution. At the time of
any such dividend or distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this Section 3(d).
(D) SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK. In case the
Company shall at any time after the date hereof and prior to the conversion or
payment of this Note in full issue to all the holders of Common Stock of the
Company any rights to subscribe for shares of Common Stock of the Company, the
Holder of the unconverted Note shall be entitled, in addition to the shares of
Common Stock receivable upon the conversion of this Note, to receive such rights
at the time such rights are distributed to the other shareholders of the Company
but only to the extent of the number of shares of Common Stock, if any, for
which this Note remains convertible. Notwithstanding anything contained herein
to the contrary, the provisions set forth in this Section 3(d) shall not be
interpreted as applying to options or similar stock purchase rights granted to
Eligible Persons (as defined in the Company's Amended and Restated 1998 Stock
Incentive Plan (the "Plan")) or Non-Employee Directors (as defined in the
Company's 1999 Non-Employee Directors' Stock Option Plan (the "Director Plan"))
pursuant to the Plan or the Director Plan.
(E) NOTICE IN EVENT OF DISSOLUTION. In case of the dissolution,
liquidation or winding-up of the Company, all rights to convert this Note shall
terminate on a date fixed by the Company, such date to be no earlier than ten
(10) days prior to the effectiveness of such dissolution, liquidation or
winding-up and not later than five (5) days prior to such effectiveness.
3.
<PAGE>
Notice of such termination of conversion rights shall be given to the last
registered Holder of this Note, as the same shall appear on the books and
records of the company, by registered mail at least thirty (30) days prior to
such termination date.
(F) COMPUTATIONS. The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Section 3, and any certificate setting forth
such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 3 absent manifest error
which can only be corrected by such independent public accountants. In addition,
the Chief Financial Officer of the Company may make any computations required by
this Section 3 and any certificate setting forth such computation signed by the
Chief Financial Officer of the Company shall be conclusive evidence of the
correctness of any computation made under this Section 3 absent manifest error.
(G) SUBDIVISION AND COMBINATION. If the Company shall at any time
after the date hereof subdivide (whether by stock split or otherwise) or combine
(whether by reverse stock split or otherwise) the outstanding shares of Common
Stock, the Conversion Price shall forthwith be proportionately decreased in the
case of subdivision or increased in the case of combination.
4. COVENANTS OF COMPANY.
(A) The Company covenants and agrees that, so long as this Note shall
be outstanding, it will:
(I) Promptly pay and discharge all lawful taxes, assessments
and governmental charges or levies imposed upon the Company or upon its income
and profits, or upon any of its property, before the same shall become a lien
upon the Company's assets or property, as well as all lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge upon such
properties or any part thereof; provided, however, that the Company shall not be
required to pay and discharge any such tax, assessment, charge, levy or claim so
long as the validity thereof shall be contested in good faith by appropriate
proceedings and the Company shall set aside, as required by the Company's
certified public accountants, on its books adequate reserves with respect to any
such tax, assessment, charge, levy or claim so contested;
(II) Do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises and
comply with all laws applicable to the Company;
(III) At all times maintain preserve, protect and keep its
material property used and useful in the conduct of its business so that the
business carried on in connection therewith may be properly and advantageously
conducted in the ordinary course at all times except as may be sold, retired or
replaced in the normal course of conducting its business consistent with good
business practice;
(IV) Keep adequately insured by what it reasonably believes are
financially sound and responsible insurers, all material property of a character
and such other
4.
<PAGE>
insurance as prudently and customarily insured by similarly situated
corporations engaged in the business in which the Company is engaged; and
(V) At all times keep true and correct books, records and
accounts.
(B) The Company covenants and agrees that all Common Stock issuable
upon the conversion of this Note will, upon issuance thereof in accordance with
the terms hereof, be duly and validly issued, fully paid and nonassessable and
no personal liability will attach to the holder thereof by reason of being such
a holder, other than as provided at law.
(C) The Company covenants and agrees that so long as all or any
portion of this Note remains outstanding, the Company will at all times have
authorized and reserved a sufficient 'number of shares of Common Stock to
provide for the conversion of this Note into Common Stock.
5. SUBORDINATION.
(A) The Company, for its successors and assigns, covenants and
agrees, and the holder of this Note by its acceptance hereof likewise covenants
and agrees that this Note and all amounts payable hereunder (the "Subordinated
------------
Debt") shall be subordinated, in the manner and to the extent set forth in this
- ----
Section 5, to the prior payment or other discharge in full of all Senior Debt
(as hereinafter defined) as follows:
(I) In the event of insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization, assignment for the benefit of
creditors or other similar proceedings in connection therewith, relative to the
Company or to all or a substantial part of the property of the Company, or in
the event of any proceedings for voluntary liquidation, dissolution or other
winding-up of the Company, whether or not involving insolvency or bankruptcy
(each, an "Insolvency Proceeding"), then
---------------------
(1) the holder of this Note shall not be entitled to
receive from the Company any further payment on account of principal of or
interest on this Note unless and until the Senior Debt shall have been paid in
full or otherwise discharged or such proceedings have been dismissed or
terminated, and to that end, unless and until the Senior Debt shall have been
paid in full or otherwise discharged or such proceedings have been dismissed or
terminated, the holders of Senior Debt (the "Senior Debtholders") shall be
------------------
entitled to receive, whether from the holder of this Note or otherwise, for
application in payment of the Senior Debt any payment or distribution of any
kind or character, whether in cash, securities or other property, which is paid
or delivered or which may be payable or deliverable on or with respect to this
Note in any such Insolvency Proceeding, and the holder of this Note shall hold
any such payments or distributions made to it in trust for the Senior
Debtholders; and
(2) any Senior Debtholder is hereby irrevocably authorized
and empowered (in its own name or in the name of the holder of this Note or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution otherwise payable to the holder of this
Note following and during the continuance of an Insolvency Proceeding and give
acquittance therefor, and to file claims and proofs of claim and
5.
<PAGE>
take such other action as it may deem necessary or advisable for the exercise or
enforcement of any of the rights or interests of any of the Senior Debtholders
under this Note.
(II) In the event that the Senior Debt is declared due and
payable prior to its stated maturity by reason of the occurrence of an event of
default with respect thereto, written notice of such acceleration is provided to
the Holder hereof and such acceleration is not rescinded, or in the event that a
default in payment of principal of or interest on the Senior Debt occurs,
written notice of such payment default is provided to the Holder hereof and such
payment default is not cured or waived, in each case under circumstances when
the provisions of the foregoing Section 5(a)(i) are not applicable, then all
principal of and interest on all Senior Debt which is due and payable (whether
by acceleration or otherwise) shall first be paid in full before any payment on
account of principal or interest is made upon this Note, and to that end, so
long as such acceleration or default continues and until the Senior Debt shall
have been paid in full or otherwise discharged, the Senior Debtholders shall be
entitled to receive, whether from the holder of this Note or otherwise, for
application in payment of the Senior Debt any payment or distribution of any
kind or character, whether in cash, securities or other property, which is paid
or delivered or which may be payable or deliverable on or with respect to this
Note after the occurrence of such acceleration or default and the provision of
notice thereof to the Holder hereof, and the Holder hereof shall hold any such
payments or distributions made to it in trust for the Senior Debtholders. The
Company agrees to notify the Holder as soon as practicable after its occurrence
of the rescission of any acceleration or the cure or waiver of any default
covered by this subsection (ii).
(III) If an event of default occurs under the Senior Debt and
the holders of Senior Debt give to the Company and the Holder hereof a written
notice requesting that no payment or distribution be made on or with respect to
this Note (a "Payment Blockage Notice"), thereafter, unless such event of
default shall have been cured or waived or shall have ceased to exist or unless
the Senior Debt shall have been paid in full or otherwise discharged, the
Company shall refrain from making any payments of interest on or principal of
this Note until the earliest to occur of (A) the commencement of any Insolvency
Proceeding, (B) the cure, waiver or cessation of such event of default, (C) the
Maturity Date, (D) payment in full or other discharge of the Senior Debt or (E)
the passage of 179 days after the Payment Blockage Notice is received by the
Company.
(IV) The Senior Debtholders are hereby authorized to demand
specific performance of this Note, whether or not the Company shall have
complied with any of the provisions hereof applicable to it, at any time when
the holder of this Note shall have failed to comply with any of the provisions
of this Section 5(a). The holder of this Note hereby irrevocably waives any
defense based on the adequacy of a remedy at law which might be asserted as a
bar to the remedy of specific performance set forth in this Section 5(a).
(V) The Holder shall not have or claim any lien or security
interest, mortgage or other charge in or on any property or assets of the
Company pursuant to this Note, whether now or hereafter existing, except in
furtherance of the execution or levy upon any judgment which the Holder is
permitted to obtain hereunder and, in all such cases, subject to the provisions
of this Note.
6.
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(VI) The Holder hereby agrees, with respect to the Senior Debt,
that the Company and the Senior Debtholders may agree to amend, waive,
supplement or otherwise modify the terms or conditions of any of the Senior
Debt, and the Senior Debtholders (or any portion of them) may grant extensions
of the time of payment or performance of and make compromises in respect of, any
or all of the Senior Debt (including, without limitation, releases of collateral
of, and settlements with, the Company) and the agreements, instruments and other
documents related thereto, in each case without the consent of the Holder and
without affecting any of the agreements or obligations of the Holder or the
Company contained in this Section 5(a). Without the necessity of any reservation
of rights against or any notice to or assent by the Holder, any demand for
payment of any of the Senior Debt may be rescinded, in whole or in part, and any
of the Senior Debt may be continued or extended, and the Senior Debtholders may
exercise or refrain from exercising any rights and remedies against the Company
and the collateral therefor, all without impairing, abridging, releasing or
affecting the subordination provisions or any of the other agreements or
obligations of the Holder or the Company contained in this Note. Nothing in this
Note shall be construed to create or impose upon the Senior Debtholders or any
of the other Senior Debtholders any fiduciary duty to the Holder or any other
implied obligation to act or refrain from acting with respect to the Company or
with respect to any of the Senior Debt in any manner that is contrary to what
the Senior Debtholders may determine from time to time is in its or their own
interests.
(VII) The Holder agrees that if, prior to the Maturity Date,
there exists any payment default under any Senior Debt, such Holder will not
take, sue for, ask or demand from the Company payment of all or any of the
Subordinated Debt or commence, or join with any creditor other than the Senior
Debtholders in commencing, or directly or indirectly cause the Company to
commence, or assist the Company in commencing, any Insolvency Proceedings
against the Company unless and until any of the Senior Debt is accelerated. If
the Holder, in contravention of this Section 5(a)(vii), shall commence,
prosecute or participate in any of the proceedings mentioned in this Section
5(a)(vii), then the Senior Debtholders may intervene and interpose as a defense
or plea the making of this Section 5(a)(vii) in its name or the name of the
Company.
(B) Except as specified in Section 5(a) above, in no event shall the
Holder be required to refund any amounts paid to it, and the Holder shall be
entitled to be paid as agreed and collect any sums due it by any lawful means;
provided, however, that any payments made to the Holder in violation of the
provisions of this Section 5 shall be deemed to be payments in trust for the
account of the Senior Debtholders, and any such amounts shall be promptly paid
over by such Holder to the Company for application to the Senior Debt. If the
holder receives any payment which the holder is required to pay over to the
Senior Debtholders under this Section 5, the Holder may, at his option, deposit
such amount into the registry of any court and allow such court to determine the
proper allocation of the payment among the Senior Debtholders.
(C) The provisions of this Section 5 are for the purpose of defining
the relative rights of the Senior Debtholders on the one hand, and the Holder on
the other hand, against the Company and its properties. The provisions of this
Section 5 may be enforced by the Senior Debtholders directly against the Holder
and the Company. No Senior Debtholder shall be prejudiced in the right to
enforce subordination of this Note by any act or failure to act by the Company
or anyone in custody of its assets or property. Nothing herein shall impair, as
among
7.
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the Company and the Holder, the obligation of the Company, which is
unconditional and absolute, to pay to the Holder hereof the principal hereof and
interest hereon in accordance with the terms and provisions hereof, nor shall
anything herein prevent the Holder from exercising all remedies otherwise
permitted by applicable law hereunder upon default under this Note, subject,
however, to the provisions of this Section 5. In addition, nothing contained in
this Section 5 shall impair any rights the Holder hereof may have pursuant to
any other agreement.
(D) After all Senior Debt of the Company is paid in full and until
this Note is paid in full, the Holder shall be subrogated to the rights of
holders of Senior Debt of the Company to receive distributions applicable to
Senior Debt of the Company to the extent that distributions otherwise payable to
the Holder have been applied to the payment of Senior Debt. A distribution made
under this Section 5 to holders of Senior Debt that otherwise would have been
made to the Holder is not, as between the Company and the Holder, a payment by
the Company on this Note.
(E) As used herein, "SENIOR DEBT" shall mean (i) all indebtedness of
-----------
the Company and/or its subsidiaries, without duplication, whether outstanding on
the date hereof or hereafter created (including all principal, interest, fees
and expenses) owed to any bank or other financial institution for (A) money
borrowed by, or purchase money obligations of, the Company and/or its
subsidiaries or (B) guarantees by the Company and/or its subsidiaries of money
borrowed or purchase money obligations, and (ii) all deferrals, renewals,
extensions, refinancings and refundings of, and amendments, modifications and
supplements to, any such indebtedness, unless by the terms of the instrument
creating or evidencing any such indebtedness referred to in this Section 5(e) it
is expressly provided that such indebtedness is not superior in right of payment
to this Note. "Senior Debt" includes interest that accrues on any such
indebtedness after the commencement of any case or proceeding relating to the
bankruptcy or insolvency of the Company (whether or not such interest is allowed
or allowable as a claim in such case or proceeding). Notwithstanding the
foregoing, "Senior Debt" shall in no event include any obligations in connection
with that certain Loan Agreement, dated as of February 27, 1998, between
Comerica-Bank California ("Comerica") and the Company (the "Loan Agreement").
(F) The Company for its successors and assigns, covenants and agrees,
and the holder of this Note by its acceptance hereof likewise covenants and
agrees that the Subordinated Debt shall be further subordinated to the
obligations under the Loan Agreement as set forth under that certain
Subordination Agreement, dated as of February 27, 1998, between The Kushner-
Locke Company and Comerica.
6. REGISTRATION RIGHTS.
(A) PIGGYBACK REGISTRATION.
(I) If the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its Common Stock under the Act in connection with a public
offering of such securities from time to time solely for cash (other than a
registration relating to the sale of securities to participants in a Company
stock or similar plan or arrangement for which securities are registered on a
Form S-8
8.
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or any successor or similar form, or a registration on Form S-4, or any
successor or similar form or any registration of stock issuable upon a
reclassification, a business combination or acquisition, an exchange of
securities or an exchange offer for securities of the Company or another
entity), the Company shall, at such time, promptly give the Holder written
notice of such registration. Upon the written request of the Holder received by
the Company within ten (10) days after the date of the Company's notice to the
Holder, which request shall state the intended method of disposition of such
shares by the Holder, the Company shall use its reasonable best efforts to cause
to be registered under the Act all of the Conversion Shares issuable upon
conversion of this Note (the "Registrable Securities") that the Holder has
properly requested to be registered (a "Piggyback Registration").
(II) In the case of a Piggyback Registration on an underwritten
public offering by the Company, if the managing underwriter reasonably
determines and advises the Company in writing that the inclusion in the
registration statement of all Registrable Securities proposed to be included
would materially interfere with the successful marketing of the securities
proposed to be registered by the Company, then such managing underwriter shall
determine the number of such Registrable Securities to be included in such
registration statement and the number of securities that may be included in such
registration statement shall be allocated (1) first, to the Company, (2) second,
to the Holder (or Holders on a pro rata basis if there are more than one Holder
at such time), and (3) third, to the extent all Registrable Securities have been
included in such registration statement, to any other shareholder of the Company
(other than Holder(s)) on a pro rata basis.
(III) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 6(a) prior to the
effectiveness thereof whether or not any Holder has decided to include
Registrable Securities in such registration; provided, however, that any
reinstatement of such registration or new registration shall be subject to the
provisions of this Section 6(a).
(B) DEMAND REGISTRATION.
(I) The Company agrees that the Holder (or Holders of a
majority or more of the Registrable Securities if there are more than one Holder
at such time) shall have the right, once but not more than once (subject to the
last sentence of this Section 6(b)(i)), beginning on the one-year anniversary of
the date the Company consummates its initial public offering of Common Stock,
upon written notice to the Company, to require that the Company prepare and
promptly file with the Securities and Exchange Commission (the "SEC") a
registration statement, as may be required or permitted under the Act, in
connection with the public offering, on a time-to-time basis or otherwise, of
any or all of the then outstanding Registrable Securities, at the Holder's
election (or the election of Holders of not less than 50% of the then
outstanding Registrable Securities in the event there are more than one Holders
at the time of such initial notice). In connection therewith, the Company shall
be obligated to prepare and file such registration statement, on Form S-3 if
such form is available, within 45 days of receipt of any such initial notice and
shall be further obligated to use its reasonable best efforts, including the
filing of any amendments or supplements thereto, to have any such registration
statement declared effective under the Act and the rules and regulations
promulgated thereunder as soon as practicable after the filing date thereof. The
Company shall also use its reasonable best efforts to
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keep any such registration statement, and the accompanying prospectus, effective
and current under the Act at its expense for a period of at least one year after
the Holder or Holders of Registrable Securities, as applicable, are permitted
without restrictions, whether contractually or otherwise, to sell Registrable
Securities or such earlier period of the Holder or Holders, as applicable, have
completed the distribution of all Registrable Securities under such registration
statement. If the Company does not have such registration statement declared
effective, or if it is declared effective but is not kept so effective and
current, Holder shall not be deemed to have exercised its rights under this
Section 6(b)(i).
(II) To the extent reasonably requested by the managing
underwriter of an underwritten offering by the Company covered by such
registration statement, the Holder will enter into an underwriting agreement in
a reasonable and customary form, with the managing underwriter which may include
deferring the sale of Registrable Securities for a period of up to one hundred
eighty (180) days after the effective date of the registration statement,
provided that any selling shareholders (other than the Holders) of the Company
who also have shares included in the registration statement will also defer
their sales for a similar period.
(III) The Company shall not be required to effect a registration
pursuant to this Section 6(b) during the one hundred twenty (120) day period
referred to in this Section 6(b)(iii), if the Company shall furnish to Holder
(or Holders, as the case may be) requesting a registration stateroom pursuant to
this Section 6(b), a certificate signed by the Chairman of the Board stating
that the Board of Directors of the Company has determined in its good faith
judgment that it would be seriously detrimental to the Company and its
stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the registration set forth above; provided that such right to delay a request
shall be exercised by the Company not more than once in any twelve (12) month
period.
(C) The Company will pay all Registration Expenses (as defined below)
incurred in connection with the Company's registration obligations pursuant to
this Note, other than underwriting discounts and commissions in connection with
the Registrable Securities. "Registration Expenses" shall consist of all
expenses incurred or incidental to the Company's performance of or compliance
with Section 6(a) and (b) hereof and the reasonable fees and disbursements of
one counsel per registration retained by the record owners of Registrable
Securities then being registered. Registration Expenses shall include, without
limitation, all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties), the
fees and expenses incurred in connection with the listing of such securities on
each securities exchange (or NASDAQ) on which similar securities issued by the
Company are then listed, all fees payable to the National Association of
Securities Dealers, Inc. and fees and disbursements of counsel for the Company
and of its independent certified public accountants (including the expenses of
any special audit or "comfort" letters required by or incident to such
performance), securities acts liabilities insurance and the reasonable fees and
expenses of any special experts retained by the Company in connection with any
registration of Registrable Securities.
10.
<PAGE>
7. INDEMNIFICATION; CONTRIBUTION.
(A) Whenever pursuant to Section 6 a registration statement relating
to any Registrable Securities is filed under the Act, amended or supplemented,
the Company will (i) indemnify and hold harmless each Holder of the Registrable
Securities covered by such registration statement, amendment or supplement (such
Holder hereinafter referred to as the "Distributing Holder"), each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, each
officer, employee, agent or partner of the Distributing Holder, each underwriter
(within the meaning of the Act) of such securities, each person, if any, who
controls (within the meaning of the Act) any such underwriter and each officer,
employee, agent or partner of such underwriter, if applicable, against any
losses, claims, damages or liabilities, joint or several, to which the
Distributing Holder, any such underwriter or any such other person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any prospectus constituting a part thereof or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading; and (ii)
reimburse the Distributing Holder, such underwriter or any such other person for
any expenses reasonably incurred by the Distributing Holder, such underwriter or
any such other person in connection with investigating or defending any such
losses, claims, damages, liabilities or actions; provided, however, that the
Company will not be liable in any such case to the extent that (A) any such
losses, claims, damages, or liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said prospectus or said amendment or supplement in
reliance upon and in conformity with information furnished in writing by such
Distributing Holder, any other Distributing Holder or any such underwriter for
use in the preparation thereof, or (B) such losses, claims, damages or
liabilities arise out of or are based upon any actual or alleged untrue
statement or actual or alleged omission made in or from any registration
statement or prospectus, but corrected in any subsequent registration statement
or prospectus, as amended or supplemented, to the extent such losses, claims,
damages or liabilities arose after the date such corrected registration
statement or prospectus was filed with the SEC and delivered to the applicable
Distributing Holder for use in connection with the sale of Common Stock.
(B) Whenever pursuant to Section 6 a registration statement relating
to the Registrable Securities is filed under the Act, amended or supplemented,
the Distributing Holder will (i) indemnify and hold harmless the Company, each
of its directors and officers who have signed said registration statement or
such amendments or supplements thereto, each underwriter (within the meaning of
the Act), each person, if any, who controls (within the meaning of the Act) the
Company or any such underwriter and each officer, employee, agent or partner of
such underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Company, any such underwriter or any such other person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any prospectus constituting a
part thereof, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the
11.
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alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading, in each case to the extent, but
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in said registration statement, said
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished in writing by such Distributing Holder for
use in the preparation thereof; and (ii) reimburse the Company, such underwriter
or any such other person for any expenses reasonably incurred by them in
connection with investigating or defending any such losses, claims, damages,
liabilities or actions.
(C) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party except to the extent prejudiced by such
omission.
(D) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense of such action with counsel reasonably satisfactory to such
indemnified party; provided, however, that, the indemnifying party shall not
have the right to assume the defense of such action if the indemnified party
shall have been advised by counsel that there are one or more legal or equitable
defenses available to them which are different from or in addition to those
available to the indemnifying party, or, in the reasonable opinion of counsel to
the indemnified party, counsel for the indemnifying party could not adequately
represent the interests of the indemnified party because such interests could
reasonably be expected to conflict with those of the indemnifying party. If the
indemnifying party is not entitled to assume the defense of a claim, it will not
be obligated to pay the fees and expenses of more than one counsel, and
appropriate local counsel, for the indemnified party with respect to such claim.
(E) CONTRIBUTION.
(I) If the indemnification provided for in this Section 7 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages or liabilities referred to therein, then
the indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute (on the basis of relative fault) to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities. The relative fault of such indemnifying and indemnified parties
shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement or a material fact or
omission or alleged omission to state a material fact, has been made by, or
relates to information supplied by, such indemnifying or indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
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proceeding. Notwithstanding the provisions of this Section 7(e)(i), in no case
shall any seller of Registrable Securities be liable or responsible for any
amount in excess of the net proceeds received by such seller from the sale of
the Registrable Securities of such seller which are included in any registration
statement contemplated by this Note.
(II) No person guilty of fraudulent misrepresentation (within
the meaning of Section 1l(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. EVENTS OF DEFAULT
(A) This Note shall become due and payable immediately upon any of
the following events, herein called "Events of Default":
(I) Default in the payment of the principal or accrued
interest on this Note, when and as the same shall become due and payable,
whether by acceleration or otherwise, and in the case of an interest payment,
such Default shall have continued for a period of fifteen (15) business days;
(II) Default in the due observance or performance of any
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof, if such default shall continue uncured
for ten (10) days after written notice, specifying such default, shall have been
given to the Company by the Holder; provided, however, that no such default in
the due observance or performance of any covenant, condition or agreement on the
part of the Company to be observed or performed pursuant to the terms hereof
shall be an Event of Default if such failure is capable of being cured for so
long as the Company is diligently working toward curing such default (but in no
event longer than twenty (20) days after the written notice of such failure is
given to the Company);
(III) Application for, or consent to, the appointment of a
receiver, trustee, liquidator, custodian or similar person or entity for the
Company or of its property or any other relief under any Bankruptcy Law;
(IV) Admission in writing of the Company's inability to pay its
debts as they mature;
(V) General assignment by the Company for the benefit of
creditors;
(VI) Filing by the Company of a voluntary case or petition in
bankruptcy, insolvency, reorganization or similar law now or hereafter in effect
or a case, petition or an answer seeking reorganization, or a similar
arrangement with creditors;
(VII) Entering against the Company of a court order approving a
petition filed against it under any Bankruptcy Law, which order shall not have
been vacated or set aside or otherwise terminated within 60 days of its entry;
or
(VIII) Acceleration of, or failure to pay when due upon maturity,
any indebtedness for money borrowed by the Company as to which the Company has
at least
13.
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$250,000 in aggregate principal amount of indebtedness outstanding which
acceleration is not rescinded or annulled or which failure is not cured within
thirty (30) days after notice of acceleration or after such failure, as the case
may be, is received by the Company.
(B) The Company agrees that it shall give notice to the Holder at
his, her, or its registered address by certified mail of the occurrence of any
Event of Default within fifteen (15) business days after it becomes aware that
such Event of Default shall have occurred.
(C) In case any one or more of the Events of Default specified above
shall happen and be continuing, the Holder may proceed to protect and enforce
his, her or its right by suit in the specific performance of any covenant or
agreement contained in this Note or in aid of the exercise of any power granted
in this Note or may proceed to enforce the payment of this Note or to enforce
any other legal or equitable rights as such Holder may have.
9. MISCELLANEOUS.
(A) This Note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company.
(B) The Company may consider and treat the person in whose name this
Note shall be registered as the absolute owner thereof for all purposes
whatsoever (whether or not this Note shall be overdue) and the Company shall not
be affected, subject to the immediately succeeding sentence, by any notice to
the contrary. Subject to the limitations herein stated, the registered owner of
this Note shall have the right to transfer this Note by assignment, and the
transferee thereof shall, upon his registration as owner of this Note, become
vested with all the powers, rights and obligations of the transferor.
Registration of any new owners shall take place, subject to Section 1 hereof,
upon presentation of this Note to the Company at its principal offices, together
with a duly authenticated assignment substantially in the form attached hereto
as Exhibit "B." In case of transfer by operation of law, the transferee agrees
to notify the Company of such transfer and of his, her or its address, and to
submit appropriate evidence regarding the transfer so that this Note may be
registered in the name of the transferee. This Note is transferable only on the
books of the Company by the holder hereof, in person or by attorney, on the
surrender hereof, duly endorsed. Communications sent to any registered owner
shall be effective as against all holders or transferees of this Note not
submitted to the Company for registration at the time of sending the
communication.
(C) Payment of principal of, and interest on, this Note shall be made
to the registered owner of this Note upon presentation of this Note on or after
maturity. No interest shall be due on this Note for such period of time that may
elapse between the maturity of this Note and its presentation for payment.
(D) Except as specifically set forth herein and except upon the
delivery of a proper written request of conversion pursuant to Section 2 hereof,
the Holder shall not, by virtue, hereof, be entitled to any rights of a
shareholder in the Company, whether at law or in equity, and the rights of the
Holder are limited to those expressed in this Note.
(E) Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Note, and (in the
case of loss, theft or destruction)
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of indemnification or security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Note, if mutilated, the Company shall execute
and deliver a new Note of like tenor and date.
(F) This Note shall be construed and enforced in accordance with the
laws of the State of California, without giving effect to the conflicts of law
principles thereof or the actual domicile of the parties. The Company and the
Holder hereby consent to the jurisdiction of the courts of the State of
California and the United States District Courts situated therein in connection
with any action concerning the provisions of this Note.
(G) The Company shall pay all costs and expenses incurred by the
Holder to enforce any of the provisions of this Note, including reasonable
attorneys' fees and other reasonable expenses of collection.
(H) All notices, requests and other communications under this Note
shall be in writing and shall be deemed to have been delivered on the third
Business Day after having been deposited in the U.S. mail, registered or
certified, postage prepaid; the first Business Day after having been sent by
recognized overnight courier; or when personally delivered; and, in each case,
addressed to the respective parties at the addresses stated below or to such
other changed addresses that the parties may have fixed by notice in accordance
herewith. The term "Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the City of Los Angeles,
California are authorized by law, regulation or executive order to remain
closed.
If to a Holder: The address of such Holder as shown on the
books of the Company.
If to the Company: 800-U.S. Search
9701 Wilshire Boulevard, Suite 700
Beverly Hills, California 90212
Attention: Corporate Secretary
Telephone: (310) 553-7000
Facsimile: (310) 786-8349
15.
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IN WITNESS WHEREOF 800-U.S. SEARCH has caused this Note to be signed in its
name by its President as of the date first above written.
800-U.S. SEARCH
By: /s/ Peter Locke
---------------------------
Peter Locke
President
<PAGE>
EXHIBIT A
CONVERSION FORM
(To be executed by the registered Holder desiring to convert the Note or any
portion thereof)
TO: 800-U.S. SEARCH
The undersigned hereby irrevocably exercises the option to convert
$___________ of aggregate principal amount of 10% Convertible Subordinated Notes
due December 31, 1999 (the "Notes") into shares of common stock, no par value
(the "Common Stock"), of 800-U.S. Search, a California corporation (the
"Company"), in accordance with the conditions and provisions of said Note. The
undersigned hereby delivers, with a copy of this notice, the Note to the Company
for cancellation and, as applicable, the issuance of a replacement Note or Notes
for any portion of the Note delivered not being converted.
The undersigned agrees not to offer, sell, transfer, pledge, assign or
otherwise dispose of any of such Common Stock, except in compliance with federal
and state securities laws, and consents that the following legend shall be
affixed to the certificates evidencing the Common Stock to be issued upon such
conversion if such legend is applicable:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH ANY SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THEY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS.
The undersigned directs that a certificate evidencing the number of shares
of Common Stock as to which this Conversion Form is applicable, together with a
check in payment for any fractional share, be issued, pursuant to the Note, in
the name of the registered holder and delivered to the undersigned at the
address set forth below:
Dated:
________________________________________________________________________________
Signature of Registered Holder
________________________________________________________________________________
Name of Registered Holder (Print)
________________________________________________________________________________
Address
________________________________________________________________________________
NOTICE: The signature on the foregoing Conversion Form must correspond to the
name as written upon the face of the Note in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder desiring to transfer the Note)
FOR VALUE RECEIVED, the undersigned Holder of the attached Note hereby
sells, assigns and transfers unto the person or persons below named $_________
aggregate principal amount of 10% Convertible Subordinated Notes due December
31, 1999 (the "Note") of 800-U.S. SEARCH (the "Company") evidenced by the
attached Note and does hereby irrevocably constitute and appoint
_____________________________ attorney to transfer the said Note on the books of
the Company, with full power of substitution in the premises.
Dated: _____________________________
Signature
Fill in for new Holder of Note:
___________________________________________
Name
___________________________________________
Address
___________________________________________
Please print name and address of assignee
(including zip code number)
NOTICE:
The signature on the foregoing Assignment must correspond to the name as written
upon the face of the attached Note in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
EXHIBIT 4.4
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE SECURITIES UNDERLYING THIS
WARRANT HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WITH ANY SECURITIES COMMISSION
OF ANY STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. THEY MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
WARRANT TO PURCHASE
COMMON STOCK
800-U.S. SEARCH
(A CALIFORNIA CORPORATION)
Dated: January 7, 1999
THIS CERTIFIES THAT, for value received, The Kushner-Locke Company
(Kushner-Locke), or its permitted registered assigns (the "Holder"), is the
owner of warrants (the "Kushner-Locke Warrant") to purchase from 800-U.S.
Search, a California corporation (the "Company"), during the Exercise Period (as
defined in subparagraph 1(a) below), and at the Warrant Price (as defined in
subparagraph 1(a) below), up to 1,000 shares of the Company's common stock
("Common Stock"), no par value per share (the shares of Common Stock underlying
this Kushner-Locke Warrant are hereinafter referred to as "Shares").
1. EXERCISE OF THE KUSHNER-LOCKE WARRANT.
(A) The rights represented by this Kushner-Locke Warrant shall be
exercisable at the Warrant Price and during the Exercise Period upon the terms
and subject to the conditions as set forth herein:
(I) Between January 7, 1999 and the earlier of (1) five (5) days
prior to the pricing of the Company's Common Stock in connection with the
initial public offering (the "IPO"), (2) a sale of all or substantially all of
the assets or any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in
which the stockholders of the Company immediately prior to such sale,
consolidation, merger or reorganization, own less then fifty percent (50%) of
the Company's voting power immediately after such sale, consolidation, merger or
reorganization, or any transaction or series of related transactions to which
the Company is a party in which in excess of fifty percent (50%) of the
Company's voting power is transferred, excluding any sale, consolidation, merger
or reorganization effected exclusively to change the domicile of the Company (an
"Acquisition") or (3) 5:00 p.m. Los Angeles, California, time on January 7,
2009, inclusive (the "Exercise Period"), the Holder shall have the option to
purchase (x) any and all of up to 500 of the Shares hereunder at an exercise
price of $2,500 per Share and (y) any and all of up to an additional 500 of the
Shares hereunder at an exercise price of $3,000 per Share (in each case, as
applicable, the "Warrant Price"). This Kushner-Locke Warrant shall expire
effective at the earlier of (x) the consummation of the IPO, (y) the
consummation of an Acquisition and (z)
1.
<PAGE>
5:00 p.m., Los Angeles, California time on January 7, 2009. An exercise of this
Kushner-Locke Warrant prior to the IPO shall be effective upon consummation of
the IPO, unless otherwise specified in writing by the Holder thereof.
(B) The rights represented by this Kushner-Locke Warrant may be
exercised at any time within the Exercise Period, in whole or in part, by (i)
the surrender of this Kushner-Locke Warrant (with the Subscription Form at the
end hereof properly completed and executed) at the principal executive office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder then appearing
on the books of the Company); and (ii) payment to the Company of the Warrant
Price then in effect for the number of Shares specified in the above-mentioned
Subscription Form; provided, however, that if this Kushner-Locke Warrant is
exercised prior to, and in contemplation of, the IPO, the Warrant Price shall be
payable within two business days after the consummation of the IPO from proceeds
from the IPO otherwise payable to the Holder. This Kushner-Locke Warrant shall
be deemed to have been exercised, in whole or in part to the extent specified,
immediately prior to the close of business on the date this Kushner-Locke
Warrant is surrendered, along with the delivery of any and all other required
documents, other than payment of the Warrant Price. The person or persons in
whose name or names the certificates for the Shares shall be issuable upon such
exercise shall be deemed the holder or holders of record of such Shares at that
time and date. The Shares so purchased shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after the Company
receives the items required to be delivered by this Paragraph 1 to evidence
Kushner-Locke's exercise of its rights represented by this Kushner-Locke Warrant
and the applicable Warrant Price. Notwithstanding anything in this Kushner-Locke
Warrant to the contrary, if the Holder exercises any portion of this Kushner-
Locke Warrant prior to an expected date of consummation of an IPO and such IPO
is not so consummated, the Holder shall have the right to revoke such exercise
of this Kushner-Locke Warrant.
(C) In lieu of exercising this Kushner-Locke Warrant or any portion
thereof, the Holder or Holders, if applicable, shall have the right to convert
during the Exercise Period the Kushner-Locke Warrant, or any portion thereof,
into Shares by executing and delivering to the Company, at its principal
executive office, a duly executed Subscription Form, specifying the portion of
the Kushner-Locke Warrant to be converted, and accompanied by the surrender of
the Kushner-Locke Warrant. The person or persons in whose name or names the
certificates for the Shares shall be issuable upon such conversion shall be
deemed the holder or holders of record of such Shares at that time and date. The
number of Shares to be issued upon such conversion shall be computed using the
following formula:
X = (P)(Y) (A-B)/A
where
X = the number of Shares to be issued to the Holder for the
percentage of the Kushner-Locke Warrants being converted
P = the percentage of the Kushner-Locke Warrants being converted
2.
<PAGE>
Y = the total number of Shares then issuable upon exercise of
the Kushner-Locke Warrant in full
A = the current market price (as defined below) of one Share
B = the Warrant Price on the date of conversion
"Current market price" per share of Common Stock at any date shall be (a) if the
Company shall have filed and not withdrawn or terminated a registration
statement for the purpose of effecting the IPO of the Common Stock, the initial
price to the public for the Common Stock, or (b) if otherwise, to be reasonably
determined by the Board of Directors of the Company in good faith.
2. RESTRICTIONS ON TRANSFER. This Kushner-Locke Warrant shall not be
transferred, sold, assigned or hypothecated except in compliance with all
applicable state and federal securities laws. Any such assignment shall be
effected by the Holder by (i) completing and executing the transfer form at the
end hereof and (ii) surrendering this Kushner-Locke Warrant with such duly
completed and executed transfer form for cancellation, accompanied by funds
sufficient to pay any applicable transfer tax, if any, at the office or agency
of the Company referred to in Paragraph 1 hereof, accompanied by a certificate
(signed by a duly authorized representative of the Holder), stating that each
transferee agrees to be bound by the terms of this Kushner-Locke Warrant. At
such time, the Company shall issue, in the name or names specified by the Holder
(including the Holder, if applicable), a new Kushner-Locke Warrant or Kushner-
Locke Warrants of like tenor and representing in the aggregate rights to
purchase the same number of Shares as are then purchasable hereunder. The Holder
acknowledges that neither this Kushner-Locke Warrant nor the Shares may be
offered or sold except pursuant to an effective registration statement under the
Act or any applicable suit securities or blue sky law, or an opinion of counsel
reasonably satisfactory to the Company that an exemption from registration under
the Act and such state laws is available.
3. COVENANTS OF THE COMPANY.
(A) The Company covenants and agrees that all Common Stock issuable
upon the exercise of this Kushner-Locke Warrant will, upon issuance thereof and
payment therefor in accordance with the terms hereof, be duly and validly
issued, fully paid and nonassessable and no personal liability will attach to
the holder thereof by reason of being such a holder, other than as set forth
herein or provided at law.
(B) The Company covenants and agrees that during the Exercise Period
the Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock to provide for the issuance of shares of Common Stock
upon the exercise of this Kushner-Locke Warrant.
4. NO RIGHTS OF SHAREHOLDER. Except as specifically set forth herein and
except upon the exercise hereof, the Holder shall not, by virtue, hereof, be
entitled to any rights of a shareholder in the Company, whether at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
3.
<PAGE>
5. REGISTRATION RIGHTS.
(A) PIGGYBACK REGISTRATION.
(I) If the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holder) any of its Common Stock under the Act in connection with a public
offering of such securities from time to time solely for cash (other than a
registration relating to the sale of securities to participants in a Company
stock or similar plan or arrangement for which securities are registered on a
Form S-8 or any successor or similar form, or a registration on Form S-4, or any
successor or similar form or any registration of stock issuable upon a
reclassification, a business combination or acquisition, an exchange of
securities or an exchange offer for securities of the Company or another
entity), the Company shall, at such time, promptly give the Holder written
notice of such registration. Upon the written request of the Holder received by
the Company within ten (10) days after the date of the Company's notice to the
Holder, which request shall state the intended method of disposition of such
shares by the Holder, the Company shall use its reasonable best efforts to cause
to be registered under the Act all of the Common Stock issuable hereunder (the
"Registrable Securities") that the Holder has properly requested to be
registered (a "Piggyback Registration").
(II) In the case of a Piggyback Registration on an underwritten
public offering by the Company, if the managing underwriter reasonably
determines and advises the Company in writing that the inclusion in the
registration statement of all Registrable Securities proposed to be included
would materially interfere with the successful marketing of the securities
proposed to be registered by the Company, then such managing underwriter shall
determine the number of such Registrable Securities to be included in such
registration statement and the number of securities that may be included in such
registration statement shall be allocated (1) first, to the Company, (2) second,
to the Holder (or Holders on a pro rata basis if there are more than one Holder
at such time), and (3) third, to the extent all Registrable Securities have been
included in such registration statement, to any other shareholder of the Company
(other than Holder(s)) on a pro rata basis.
(III) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 5(a) prior to the
effectiveness thereof whether or not any Holder has decided to include
Registrable Securities in such registration; provided, however, that any
reinstatement of such registration or new registration shall be subject to the
provisions of this Section 5(a).
(B) DEMAND REGISTRATION.
(I) The Company agrees that the Holder (or Holders or a
majority or more of the Registrable Securities if there are more than one Holder
at such time) shall have the right, once but not more than once (subject to the
last sentence of this Section 5(b)(i)), beginning on the one-year anniversary of
the date the Company consummates its initial public offering of Common Stock,
upon written notice to the Company, to require that the Company prepare and
promptly file with the Securities and Exchange Commission (the "SEC") a
registration statement, as may be required or permitted under the Act, in
connection with the public offering,
4.
<PAGE>
on a time-to-time basis or otherwise, of any or all of the then outstanding
Shares, at the Holder's election (or the election of Holders of not less than
50% of the then outstanding Shares in the event there are more than one Holders
at the time of such initial notice). In connection therewith, the Company shall
be obligated to prepare and file such registration statement, on Form S-3 if
such form is available, within 45 days of receipt of any such initial notice and
shall be further obligated to use its reasonable best efforts, including the
filing of any amendments or supplements thereto, to have any such registration
statement declared effective under the Act and the rules and regulations
promulgated thereunder as soon as practicable after the filing date thereof. The
Company shall also use its reasonable best efforts to keep any such registration
statement, and the accompanying prospectus, effective and current under the Act
at its expense for a period of at least one year after the Holder or Holders of
Registrable Securities, as applicable, are permitted without restrictions,
whether contractually or otherwise, to sell the Registrable Securities or such
earlier period if the Holder or Holders, as applicable, have completed the
distribution of all Registrable Securities under such registration statement. If
the Company does not have such registration statement declared effective, or if
it is declared effective but is not kept so effective and current, Holder shall
not be deemed to have exercised its rights under this Section 5(b)(i).
(II) To the extent reasonably requested by the managing
underwriter of an underwritten offering by the Company covered by such
registration statement, the Holder will enter into an underwriting agreement in
a reasonable and customary form, with the managing underwriter which may include
deferring the sale of Shares for a period of up to one hundred eighty (180) days
after the effective date of the registration statement, provided that any
selling shareholders (other than the Holders) of the Company who also have
shares included in the registration statement will also defer their sales for a
similar period.
(III) The Company shall not be required to effect a registration
pursuant to this Section 5(b) during the one hundred twenty (120) day period
referred to in this Section 5(b)(iii), if the Company shall furnish to Holder
(or Holders, as the case may be) requesting a registration statement pursuant to
this Section 5(b), a certificate signed by the Chairman of the Board stating
that the Board of Directors of the Company has determined in its good faith
judgment that it would be seriously detrimental to the Company and its
stockholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the registration set forth above; provided that such right to delay a request
shall be exercised by the Company not more than once in any twelve (12) month
period.
(C) The Company will pay all Registration Expenses (as defined below)
incurred in connection with the Company's registration obligations pursuant to
this Kushner-Locke Warrant, other than underwriting discounts and commissions in
connection with the Registrable Securities. "Registration Expenses" shall
consist of all expenses incurred or incidental to the Company's performance of
or compliance with this Kushner-Locke Warrant, and the reasonable fees and
disbursements of one counsel per registration retained by the record owners of
Registrable Securities then being registered. Registration expenses shall
include, without limitation, all registration and filing fees, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), printing expenses,
5.
<PAGE>
messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of the Company's officers and employees
performing legal or accounting duties), the fees and expenses incurred in
connection with the listing of such securities on each securities exchange (or
NASDAQ) on which similar securities issued by the Company are then listed, all
fees payable to the National Association of Securities Dealers, Inc. and fees
and disbursements of counsel for the Company and of its independent certified
public accountants (including the expenses of any special audit or "comfort"
letters required by or incident to such performance), securities acts
liabilities insurance and the reasonable fees and expenses of any special
experts retained by the Company in connection with any registration of
Registrable Securities.
6. INDEMNIFICATION; CONTRIBUTION.
(A) Whenever pursuant to Paragraph 5 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company will (i) indemnify and hold harmless each Holder of
the Registrable Securities covered by such registration statement, amendment or
supplement (such Holder hereinafter referred to as the "Distributing Holder"),
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, each officer, employee, agent or partner of the
Distributing Holder, each underwriter (within the meaning of the Act) of such
securities, each person, if any, who controls (within the meaning of the Act)
any such underwriter and each officer, employee, agent or partner of such
underwriter, if applicable, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such underwriter or any
such other person may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any prospectus
constituting a part hereof or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading; and (ii) reimburse the Distributing Holder, such underwriter or
any such other person for any expenses reasonably incurred by the Distributing
Holder, such underwriter or any such other person in connection with
investigating or defending any such losses, claims, damages, liabilities or
actions; provided, however, that the Company will not be liable in any such case
to the extent that (A) any such losses, claims, damages or liabilities arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in said registration statement, said prospectus or said
amendment or supplement in reliance upon and in conformity with information
furnished in writing by such Distributing Holder, any other Distributing Holder
or any such underwriter for use in the preparation thereof, or (B) such losses,
claims, damages or liabilities arise out of or are based upon any actual or
alleged untrue statement or actual or alleged omission made in or from any
registration statement or prospectus, but corrected in any subsequent
registration statement or prospectus, as amended or supplemented, to the extent
such losses, claims, damages or liabilities arose after the date such corrected
registration statement or prospectus was filed with the SEC and delivered to the
applicable Distributing Holder for use in connection with the sale of Common
Stock.
(B) Whenever pursuant to Paragraph 5 a registration statement
relating to the Registrable Securities is filed under the Act, amended or
supplemented, the Distributing Holder
6.
<PAGE>
will (i) indemnify and hold harmless the Company, each of its directors and
officers who have signed said registration statement or such amendments or
supplements thereto, each underwriter (within the meaning of the Act), each
person, if any, who controls (within the meaning of the Act) the Company or any
such underwriter and each officer, employee, agent or partner of such
underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Company, any such underwriter or any such other person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any prospectus constituting a
part thereof, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading, in each ease to the extent, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished in writing
by such Distributing Holder for use in the preparation thereof; and (ii)
reimburse the Company, such underwriter or any such other person for any
expenses reasonably incurred by them in connection with investigating or
defending any such losses, claims, damages, liabilities or actions.
(C) Promptly after receipt by an indemnified party under this
Paragraph 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party except to the extent
prejudiced by such omission.
(D) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense of such action with counsel reasonably satisfactory to such
indemnified party; provided, however, that, the indemnifying party shall not
have the right to assume the defense of such action if the indemnified party
shall have been advised by counsel that there are one or more legal or equitable
defenses available to them which are different from or in addition to those
available to the indemnifying party, or, in the reasonable opinion of counsel to
the indemnified party, counsel for the indemnifying party could not adequately
represent the interests of the indemnified party because such interests could
reasonably be expected to conflict with those of the indemnifying party. If the
indemnifying party is not entitled to assume the defense of a claim, it will not
be obligated to pay the fees and expenses of more than one counsel, and
appropriate local counsel, for the indemnified party with respect to such claim.
(E) CONTRIBUTION.
(I) If the indemnification provided for in this Section 6 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages or liabilities referred to therein, then
the indemnifying party, in lieu of
7.
<PAGE>
indemnifying such indemnified party, shall contribute (on the basis of relative
fault) to the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities. The relative fault of such
indemnifying and indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding. Notwithstanding the provisions of this Section
6(e)(i), in no case shall any seller of Registrable Securities be liable or
responsible for any amount in excess of the net proceeds received by such seller
from the sale of the Registrable Securities of such seller which are included in
any registration statement contemplated by this Kushner-Locke Warrant.
(II) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
7. ADJUSTMENTS OF WARRANT PRICE AND NUMBER OF SHARES.
(A) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
Warrant Price pursuant to the provisions of this Paragraph 7, the number of
Shares issuable upon the exercise of the Kushner-Locke Warrant shall be adjusted
to the nearest full whole number by multiplying a number equal to the Warrant
Price in effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of the Kushner-Locke Warrant immediately prior to such
adjustment and dividing the product so obtained by the then adjusted Warrant
Price.
(B) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no value, or from no par value to par value, or as a
result of a subdivision or combination), or in the case of any consolidation of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
assets or property of the Company as an entirety or substantially as an
entirety, the Holder shall thereafter have the right, upon exercise of the
Kushner-Locke Warrant, to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Kushner-Locke Warrant immediately prior to
any such events at a price equal to the product of (x) the number of Shares
issuable upon exercise of the Kushner-Locke Warrant and (y) the Warrant Price in
effect immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance, as if such Holder had exercised the
Kushner-Locke Warrant.
8.
<PAGE>
Upon the consummation of any sale of all or substantially all of the assets
of the Company to, or consolidation with or merger of the Company into, any
person or entity (other than a merger which has, as one of its purposes or
effects, the reincorporation of the Company), all rights under this Kushner-
Locke Warrant shall terminate other than the right of the Holder to receive the
consideration such Holder would have received if it had exercised the Kushner-
Locke Warrant immediately prior to such sale, consolidation or merger, such
right to receive consideration to be net of the applicable Warrant Price for
such Warrant immediately prior to such termination.
(C) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO OUTSTANDING
SECURITIES. In the event that the Company shall at any time after the date
hereof and prior to the exercise in full or expiration of the Kushner-Locke
Warrant declare a dividend (other than a dividend consisting solely of a cash
dividend or distribution payable out of current or retained earnings) or
otherwise distribute to all of the holders of Common Stock any monies, assets,
property, rights, evidences of indebtedness, securities (other than such a cash
dividend or distribution), whether issued by the Company or by another person or
entity, or any other thing of value, the Holder of the unexercised Kushner-Locke
Warrant shall thereafter be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise thereof, to receive, upon the
exercise of such Kushner-Locke Warrant, the same monies, assets, property,
rights, evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution as if the Holder were the owner of the Shares at the time of such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Paragraph 7(c).
(D) SUBSCRIPTION RIGHTS FOR SHARES OF COMMON STOCK. In case the
Company shall at any time after the date hereof and prior to the exercise in
full or the expiration of the Kushner-Locke Warrant issue to all the holders of
Common Stock of the Company any rights to subscribe for shares of Common Stock
of the Company, the Holder of the unexercised Kushner-Locke Warrant shall be
entitled, in addition to the shares of Common Stock receivable upon the exercise
of the Kushner-Locke Warrant, to receive such rights at the time such rights are
distributed to the other shareholders of the Company but only to the extent of
the number of shares of Common Stock, if any, for which the Kushner-Locke
Warrant remains exercisable. Notwithstanding anything contained herein to the
contrary, the provisions set forth in this Section 7(d) shall not be interpreted
as applying to options or similar stock purchase rights granted to Eligible
Persons (as defined in the Company's Amended and Restated 1999 Stock Incentive
Plan (the "Plan")) or Non-Employee Directors (as defined in the Company's 1999
Non-Employee Directors' Stock Option Plan (the "Director Plan")) pursuant to the
Plan or the Director Plan.
(E) NOTICE IN EVENT OF DISSOLUTION. In case of the dissolution,
liquidation or winding-up of the Company, all rights under the Kushner-Locke
Warrant shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of such dissolution,
liquidation or winding-up and not later than five (5) days prior to such
effectiveness. Notice of such termination of purchase rights shall be given to
the last registered Holder of the Kushner-Locke Warrant, as the same shall
appear on the books and records of the company, by registered mail at least
thirty (30) days prior to such termination date.
9.
<PAGE>
(F) COMPUTATIONS. The Company may retain a firm of independent public
accountants (who may be any such firm regularly employed by the Company) to make
any computation required under this Paragraph 7, and any certificate setting
forth such computation signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Paragraph 7 absent manifest error
which can only be corrected by such independent public accountants. In addition,
the Chief Financial Officer of the Company may make any computations required by
this Paragraph 7 and any certificate setting forth such computation signed by
the Chief Financial Officer of the Company shall be conclusive evidence of the
correctness of any computation made under this Paragraph 7 absent manifest
error.
(G) SUBDIVISION AND COMBINATION. If the Company shall at any time
after the date hereof subdivide (whether by stock split or otherwise) or combine
(whether by reverse stock split or otherwise) the outstanding shares of Common
Stock, the Warrant Price of the Kushner-Locke Warrant shall forthwith be
proportionately decreased in the case of subdivision or increased in the case of
combination.
8. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Kushner-Locke Warrant,
provided, however, that if the Holder exercises the Kushner-Locke Warrant in
full, any fractional shares of Common Stock shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock.
9. MISCELLANEOUS.
(A) Notwithstanding anything to the contrary contained in this
Agreement or elsewhere, the Kushner-Locke Warrant cannot be redeemed by the
Company without a written agreement between the Company and the then Holder
thereof.
(B) This Kushner-Locke Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
conflicts of law principles thereof.
(C) All notices, requests and other communications under this
Kushner-Locke Warrant shall be in writing and shall be deemed to have been
delivered on the third Business Day after having been deposited in the U.S.
mail, registered or certified, postage prepaid; the first Business Day after
having been sent by recognized overnight courier; or when personally delivered;
and, in each case, addressed to the respective parties at the addresses stated
below or to such other changed addresses that the parties may have fixed by
notice in accordance herewith. The term "Business Day" shall mean any day other
than a Saturday, a Sunday or a day on which banking institutions in the City of
Los Angeles, California are authorized by law, regulation or executive order to
remain closed.
If to a Holder: The address of such Holder as shown
on the books of the Company.
10.
<PAGE>
If to the Company: 800-U.S. Search
9701 Wilshire Boulevard, Suite 700
Beverly Hills, California 90212
Attention: Corporate Secretary
Telephone: (310) 553-7000
Facsimile: (310) 786-8349
(D) The Company and Kushner-Locke may from time-to-time supplement or
amend this Kushner-Locke Warrant without the approval of any Holder other than
Kushner-Locke in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to add any other provisions in regard to matters or
questions arising hereunder which the Company and Kushner-Locke may deem
necessary or desirable and which the Company and Kushner-Locke deem not to
materially adversely affect the interests of the Holder, which determination
shall be conclusively evidenced by the execution and delivery of a supplement or
amendment hereto.
(E) All the covenants and provisions of this Kushner-Locke Warrant by
or for the benefit of the Company and the Holder shall bind and inure to the
benefit of their respective successors and assigns hereunder.
(F) Nothing in this Kushner-Locke Warrant shall be construed to give
to any person or corporation other than the Company and Kushner-Locke and any
other registered Holder any legal or equitable right, and this Kushner-Locke
Warrant shall be for the sole and exclusive benefit of the Company and Kushner-
Locke and any other Holder.
11.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Kushner-Locke Warrant to be
signed by its duly authorized officer and this Kushner-Locke Warrant to be dated
as of January 7, 1999.
800-U.S. SEARCH
By: /s/ Peter Locke
-------------------------------------
Peter Locke
President
Agreed, acknowledged and accepted
as of this 7th day January, 1999.
THE KUSHNER-LOCKE COMPANY
By: /s/ Bruce Lilliston
------------------------------
Bruce Lilliston
President
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date:__________, _____
800-U.S. SEARCH
Attn: President
Ladies and Gentlemen:
[_] The undersigned hereby elects to exercise the warrant issued to it by 800-
U.S. SEARCH (the "Company") and dated ____________, _______ (the "Warrant")
and to purchase thereunder ___________________ shares of the Common Stock
of the Company (the "Shares") at a purchase price of _________________
Dollars ($____________) per share or unit or an aggregate purchase price of
___________________Dollars ($____________) (the "Purchase Price").
[_] The undersigned hereby elects under the provision set forth in Section 1(c)
of the Warrant to convert _____________ percent (_________%) of the value
of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
aggregate Purchase Price herewith in full in cash or by certified check or wire
transfer, if applicable.
The certificate(s) or other instruments for such shares or units shall be
issued in the name of the undersigned or as otherwise indicated below.
________________________________________
Signature
________________________________________
Name for Registration
________________________________________
________________________________________
________________________________________
Mailing Address
Very truly yours,
________________________________________
By: ____________________________________
Name:
Title:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Kushner-Locke Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________________the right to purchase ________________ shares of
Common Stock of 800-U.S. SEARCH represented by the foregoing Kushner-Locke
Warrant, and appoints _____________ attorney to transfer such rights on the
books of 800-U.S. SEARCH with full power of substitution in the premises.
Dated:__________________________
________________________________
(Name of Holder)
________________________________
(Signature of Holder)
________________________________
(Address)
________________________________
(Address)
In the presence of:
________________________________
________________________________
*Signature must conform in all respects to the name of registered Holder.
<PAGE>
EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________, 1999 by
and between US SEARCH CORP.COM, a Delaware corporation (the "Corporation"), and
____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ______________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than the Bylaws or the Code permitted prior to
adoption of such amendment).
1.
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(A) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(B) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(A) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(B) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(C) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(D) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(E) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(F) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE>
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(A) the Corporation will be entitled to participate therein at its
own expense;
(B) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and
3.
<PAGE>
(C) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE>
12. SURVIVAL OF RIGHTS.
(A) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(B) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(A) If to Agent, at the address indicated on the signature page
hereof.
5.
<PAGE>
(B) If to the Corporation, to
US SEARCH Corp.com
9107 Wilshire Boulevard, Suite 700
Beverly Hills, CA 90210
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
US SEARCH CORP.COM
By:_____________________________________
Name:___________________________________
Title:__________________________________
AGENT
________________________________________
Address:
________________________________________
________________________________________
6.
<PAGE>
EXHIBIT 10.2
800-U.S. SEARCH
AMENDED AND RESTATED
1998 STOCK INCENTIVE PLAN
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS............................................................ 1
1.1 Definitions...................................................... 1
2. THE PLAN............................................................... 4
2.1 Purpose.......................................................... 4
2.2 Administration................................................... 4
2.3 Participation.................................................... 5
2.4 Stock Subject to the Plan........................................ 5
2.5 Grant of Awards.................................................. 6
2.6 Exercise of Awards............................................... 6
3. OPTIONS................................................................ 6
3.1 Grants........................................................... 6
3.2 Option Price..................................................... 6
3.3 Option Period.................................................... 7
3.4 Exercise of Options.............................................. 7
3.5 Limitations On Grant of Incentive Stock Options.................. 7
3.6 Additional Rights................................................ 8
4. STOCK APPRECIATION RIGHTS.............................................. 8
4.1 Grants........................................................... 8
4.2 Exercise of Stock Appreciation Rights............................ 8
4.3 Payment.......................................................... 9
5. RESTRICTED STOCK AWARDS................................................ 10
5.1 Grants........................................................... 10
5.2 Restrictions..................................................... 10
6. PERFORMANCE SHARE AWARDS............................................... 10
6.1 Grants........................................................... 10
7. OTHER PROVISIONS....................................................... 10
7.1 Rights of Eligible Persons, Participants and Beneficiaries....... 10
7.2 Adjustments Upon Changes in Capitalization....................... 11
7.3 Termination of Employment........................................ 12
7.4 Acceleration of Awards........................................... 14
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
PAGE
7.5 Government Regulations........................................... 14
7.6 Tax Withholding.................................................. 14
7.7 Amendment, Termination and Suspension............................ 15
7.8 Privileges of Stock Ownership; Nondistributive Intent............ 15
7.9 Effective Date of the Plan....................................... 15
7.10 Term of the Plan................................................. 16
7.11 Governing Law.................................................... 16
</TABLE>
ii.
<PAGE>
800-U.S. SEARCH
AMENDED AND RESTATED
1998 STOCK INCENTIVE PLAN
1. DEFINITIONS.
1.1 DEFINITIONS.
(A) "AWARD" shall mean an Option, which may be designated as a
Nonqualified Stock Option or an Incentive Stock Option, a Stock Appreciation
Right, a Restricted Stock Award or Performance Share Award, in each case granted
under this Plan.
(B) "AWARD AGREEMENT" shall mean a written agreement setting forth
the terms of an Award.
(C) "AWARD DATE" shall mean the date upon which the Committee took
the action or committed to take the action granting an Award or such later date
as is prescribed by the Committee.
(D) "AWARD PERIOD" shall mean the period beginning on an Award Date
and ending on the expiration date of such Award.
(E) "BENEFICIARY" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death.
(F) "BOARD" shall mean the Board of Directors of the Corporation.
(G) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(H) "COMMISSION" shall mean the Securities and Exchange Commission.
(I) "COMMITTEE" shall mean either the committee appointed by the
Board, consisting of two or more members, each of whom is a Non-Employee
Director, or the entire Board if each member is a Non-Employee Director (except
as otherwise permitted under Rule 16b-3 promulgated under the Exchange Act),
provided that, if there are two or more members of the Board who are "outside
directors," within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder, then the Committee shall consist of only such members.
(J) "COMMON STOCK" shall mean the Common Stock of the Corporation.
(K) "COMPANY" shall mean, collectively, the Corporation and its
Subsidiaries.
1.
<PAGE>
(L) "CORPORATION" shall mean 800-U.S. Search Company, a California
corporation, and its successors.
(M) "ELIGIBLE PERSON" shall mean an employee, director, officer, key
employee of the Company or any other person who, in the opinion of the board, is
rendering valuable services to the Company, including without limitation an
independent contractor, outside consultant or advisor to the Company.
(N) "EVENT" shall mean any of the following:
(1) Approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation;
(2) Approval by the shareholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or into one or
more entities which are not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity are, or
are to be, owned by former shareholders of the Corporation;
(3) Approval by the shareholders of the Corporation of the sale
of substantially all of the Corporation's business and/or assets to a person or
entity which is not a Subsidiary; or
(4) A Change in Control. A "Change in Control" shall be deemed
to have occurred if (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than The Kushner-Locke Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 30% or
more of the combined voting power of the Corporation's then outstanding
securities; or (B) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board cease for any reason to
constitute at least a majority thereof, unless the election, or nomination for
election by the Corporation's shareholders, of each new Board member was
approved by a vote of at least three-fourths of the Board members then still in
office who were Board members at the beginning of such period.
(O) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(P) "FAIR MARKET VALUE" shall mean (i) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the Composite Tape, as published in the Western Edition of The Wall
Street Journal, of the principal national securities exchange on which the stock
is so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (ii) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (iii) if the stock is not listed or admitted
to trade on a national securities exchange and is not reported on the National
Market Report System, the mean between the closing bid and asked price for the
stock on such date, as furnished by the NASD; (iv) if the
2.
<PAGE>
stock is not listed or admitted to trade on a national securities exchange, is
not reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the
values established by the Committee for purposes of granting Options under the
Plan.
(Q) "NON-EMPLOYEE DIRECTOR" shall mean a Non-Employee Director within
the meaning of the applicable regulatory requirements promulgated under Section
16 of the Exchange Act as in effect from time to time.
(R) "INCENTIVE STOCK OPTION" shall mean an option which is designated
as an incentive stock option within the meaning of Section 422 of the Code, the
award of which contains such provisions as are necessary to comply with that
section.
(S) "LISTING DATE" shall mean the first date upon which any security
of the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange or designated (or approved for designation) upon notice
of issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(T) "NONQUALIFIED STOCK OPTION" shall mean an option which is not
designated as an Incentive Stock Option.
(U) "OPTION" shall mean an option to purchase Common Stock under this
Plan. An Option shall be designated by the Committee as a Nonqualified Stock
Option or an Incentive Stock Option.
(V) "PARTICIPANT" shall mean an Eligible Person, who has been awarded
an Award.
(W) "PERFORMANCE SHARE AWARD" shall mean an award of shares of Common
Stock, issuance of which is contingent upon attainment of performance objectives
specified by the Committee.
(X) "PERSONAL REPRESENTATIVE" shall mean the person or persons who,
upon the disability or incompetence of a Participant, shall have acquired on
behalf of the Participant by legal proceeding or otherwise the power to exercise
the rights and receive the benefits specified in this Plan.
(Y) "PLAN" shall mean the 800-U.S. SEARCH Company 1998 Stock
Incentive Plan as in effect from time to time.
(Z) "RESTRICTED STOCK" shall mean those shares of Common Stock issued
pursuant to a Restricted Stock Award which are subject to the restrictions set
forth in the related Award Agreement.
3.
<PAGE>
(AA) "RESTRICTED STOCK AWARD" shall mean an award of a fixed number of
shares of Common Stock to the Participant subject, however, to payment of such
consideration, if any, and such forfeiture provisions, as are set forth in the
Award Agreement.
(BB) "RETIREMENT" shall mean retirement as defined in termination of
employment with the Company pursuant to the Company's retirement policy, as in
effect from time to time.
(CC) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended from time to time.
(DD) "STOCK APPRECIATION RIGHT" shall mean a right to receive a number
of shares of Common Stock or an amount of cash, or a combination of shares and
cash, determined as provided in Section 4.3(a).
(EE) "SUBSIDIARY" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
(FF) "TAX-OFFSET BONUS" shall mean a bonus payable pursuant to a
disqualifying disposition of Common Stock acquired pursuant to the exercise of
an Incentive Stock Option, determined as provided in Section 3.6.
(FF) "TEN-PERCENT SHAREHOLDER" shall mean an individual who, at the
time an Incentive Stock Options is granted, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or of its parent or subsidiary corporation, within the meaning of
Section 422 of the Code.
(GG) "TOTAL DISABILITY" shall mean a "permanent and total disability"
within the meaning of Section 22(e)(3) of the Code.
2. THE PLAN.
2.1 PURPOSE. The purpose of this Plan is to promote the success of the
Company by providing an additional means to attract and retain key personnel
through added long term incentives for high levels of performance and for
significant efforts to improve the financial performance of the Company by
granting Awards.
2.2 ADMINISTRATION.
(A) This Plan shall be administered by the Committee. Action of the
Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the written consent of a majority of its members.
In the event action by the Committee is taken by written consent, the action
shall be deemed to have been taken at the time specified in the consent or, if
none is specified, at the time of the last signature. The Committee may
delegate administrative functions to individuals who are officers or employees
of the Company (other than functions which are required to be performed by the
Committee pursuant to
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regulations promulgated under Section 16 of the Exchange Act or Section 162(m)
of the Code and the regulations promulgated thereunder).
(B) Subject to the express provisions of this Plan, the Committee
shall have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Company and Participants under this
Plan, to further define the terms used in this Plan, to prescribe, amend and
rescind rules and regulations relating to the administration of this Plan, to
determine the duration and purposes of leaves of absence which may be granted to
Participants without constituting a termination of their employment for purposes
of this Plan and to make all other determinations necessary or advisable for the
administration of this Plan. The determinations of the Committee on the
foregoing matters shall be conclusive.
(C) Any action taken by, or inaction of, the Corporation, any
Subsidiary, the Board or the Committee relating to this Plan shall be within the
absolute discretion of that entity or body and shall be conclusive and binding
upon all persons. No member of the Board or Committee, or officer of the
Corporation or Subsidiary, shall be liable for any such action or inaction of
the entity or body, of another person or, except in circumstances involving bad
faith, of himself or herself. Subject only to compliance with the express
provisions hereof, the Board and Committee may act in their absolute discretion
in matters related to this Plan.
(D) Subject to the requirements of Section 1.1(i), the Board, at any
time it so desires, may increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any portion of its
members, and may appoint such person or persons as it desires to fill any
vacancy existing on the Committee, whether caused by removal, resignation or
otherwise.
2.3 PARTICIPATION. Awards may be granted only to Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise eligible, be
granted additional Awards if the Committee shall so determine.
2.4 STOCK SUBJECT TO THE PLAN. The stock to be offered under this Plan
shall be shares of the Corporation's authorized but unissued Common Stock. The
aggregate amount of Common Stock that may be issued or transferred pursuant to
Awards granted under this Plan shall not exceed 2,868 shares, subject to
adjustment as set forth in Section 7.2. If any Option and any related Stock
Appreciation Right shall lapse or terminate without having been exercised in
full, or any Common Stock subject to a Restricted Stock Award shall not vest or
any Common Stock subject to a Performance Share Award shall not have been
transferred, the unpurchased shares subject thereto shall again be available for
purposes of this Plan; provided, however, that the counting of shares subject to
Awards granted under this Plan against the number of shares available for
further Awards shall in all cases conform to the requirements of Rule 16b-3
under the Exchange Act; and provided, further, that with respect to any Option
and any Stock Appreciation Right granted to any Eligible Person who is a
"covered employee," as defined in Section 162(m) of the Code and the regulations
promulgated thereunder, that is canceled, the number of shares subject to such
Option and Stock Appreciation Right shall continue to count against the maximum
number of shares which may be the subject of Options and Stock Appreciation
Rights granted to such Eligible Person. For purposes of the preceding sentence,
if, after the grant, the exercise price of an Option and/or the base amount of
any Stock Appreciation
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Rights is reduced, such reduction shall be treated as a cancellation of such
Option and Stock Appreciation Right, and the grant of a new Option and Stock
Appreciation Right, as applicable, and both such deemed cancellation and grant
shall reduce the maximum number of shares for which Options and Stock
Appreciation Rights may be granted to the holder of such Option and Stock
Appreciation Right, to the extent required by Section 162(m) of the Code and the
regulations promulgated thereunder.
2.5 GRANT OF AWARDS. Subject to the express provisions of the Plan, and
subject to disapproval by the Board, the Committee shall determine from the
class of Eligible Persons those individuals to whom Awards under the Plan shall
be granted, the terms of Awards (which need not be identical) and the number of
shares of Common Stock subject to each Award; provided, however, that no
Eligible Person may be granted Options and Stock Appreciation Rights relating in
the aggregate to more than 2,000 shares of Common Stock (subject to adjustment
as provided in Section 7.2) in any one year period; and provided, further, that
any shares of Common Stock relating to Stock Appreciation Rights granted
concurrently with one or more Options in accordance with Section 4.1 shall only
be counted once for purposes of such limit. Each Award shall be subject to the
terms and conditions set forth in the Plan and such other terms and conditions
established by the Committee as are not inconsistent with the purpose and
provisions of the Plan. The grant of an Award is made on the Award Date.
2.6 EXERCISE OF AWARDS. An option or Stock Appreciation Right shall be
deemed to be exercised when the Secretary of the Corporation receives written
notice of such exercise from the Participant, together with payment of the
purchase price made in accordance with Section 3.2(a), except to the extent
payment may be permitted to be made following delivery of written notice of
exercise in accordance with Section 3.2(b). Notwithstanding any other provision
of this Plan, the Committee may impose, by rule and in Award Agreements, such
conditions upon the exercise of Awards (including, without limitation,
conditions limiting the time of exercise to specified periods) as may be
required to satisfy applicable regulatory requirements, including without
limitation Rule 16b-3 (or any successor rule) promulgated by the Commission
pursuant to the Exchange Act.
3. OPTIONS.
3.1 GRANTS. One or more Options may be granted to any Eligible Person.
Each Option so granted shall be designated by the Committee as either a
Nonqualified Stock Option or an Incentive Stock Option.
3.2 OPTION PRICE.
(A) The purchase price per share of the Common Stock covered by each
Option shall be determined by the Committee, but in the case of Incentive Stock
Options shall not be less than 100% (110% in the case of a Ten Percent
Shareholder) of the Fair Market Value of the Common Stock on the date the
Incentive Stock Option is granted. The purchase price of any shares purchased
shall be paid in full at the time of each purchase in one or a combination of
the following methods: (i) in cash, or by certified or cashier's check payable
to the order of the Corporation, (ii) if authorized by the Committee or
specified in the Option being exercised, by a promissory note made by the
Participant in favor of the Corporation, upon the terms and
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conditions determined by the Committee but at a rate of interest at least equal
to the imputed interest specified under Section 483 or Section 1274, whichever
is applicable, of the Code, and secured by the Common Stock issuable upon
exercise in compliance with applicable law (including, without limitation, state
corporate law and federal margin requirements), or (iii) by shares of Common
Stock of the Corporation already owned by the Participant. Shares of Common
Stock used to satisfy the exercise price of an Option shall be valued at their
Fair Market Value on the date of exercise.
(B) In addition to the payment methods described in subsection (a),
the Option may provide that the Option can be exercised and payment made by
delivering a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Corporation the amount of
sale or loan proceeds necessary to pay the exercise price and, unless otherwise
allowed by the Committee, any applicable tax withholding under Section 7.6. The
Corporation shall not be obligated to deliver certificates for the shares unless
and until it receives full payment of the exercise price therefor.
3.3 OPTION PERIOD. Each Option and all rights or obligations thereunder
shall expire on such date as shall be determined by the Committee, but not later
than 10 years after the Award Date of an Incentive Stock Option (five years in
the case of an Incentive Stock Option granted to a Ten Percent Shareholder) or
10 years and one day after the Award Date of a Nonqualified Stock Option, and
shall be subject to earlier termination as hereinafter provided.
3.4 EXERCISE OF OPTIONS. Except as otherwise provided in Section 7.4, an
Option may become exercisable, in whole or in part, on the date or dates
specified in the Award Agreement and thereafter shall remain exercisable until
the expiration or earlier termination of the Participant's Option. The
Committee may, at any time after grant of the Option and from time to time,
increase the number of shares purchasable at any time so long as the total
number of shares subject to the Option is not increased. No Option shall be
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded. Not less than 10 shares of Common Stock may be purchased
at one time unless the number purchased is the total number at the time
available for purchase under the terms of the option.
3.5 LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS.
(A) The aggregate Fair Market Value (determined as of the Award Date)
of the Common Stock for which Incentive Stock Options may first become
exercisable by any Participant during any calendar year under this Plan (other
than as a result of acceleration pursuant to Section 7.4 or 7.2), together with
that of common stock subject to incentive stock options first exercisable by
such Participant under any other plan of the Corporation, its "parent
corporation" or any "subsidiary corporation," as those terms are defined in
Section 424 of the Code, shall not exceed $100,000. To the extent such
limitation is exercised as a result of acceleration (or any other reason),
Options shall be treated as Nonqualified Stock Options.
(B) There shall be imposed in the Award Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in Section 422
of the Code.
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(C) No Incentive Stock Option may be granted to any Ten Percent
Shareholder unless the exercise price of such Option is at least 110% of the
Fair Market Value of the stock subject to the Option and such Option by its
terms is not exercisable after the expiration of five years from the date such
Option is granted.
(D) No Incentive Stock Option may be granted to any person who is not
an employee of the Company or any subsidiary corporation as such term is defined
in Section 424 of the Code.
3.6 ADDITIONAL RIGHTS. In its discretion the Committee may, in the Award
Agreement, provide for a Tax-Offset Bonus to any Participant who elects to make
a disqualifying disposition (as defined in Section 422(a)(1) of the Code) of
Common Stock acquired pursuant to the exercise of an Incentive Stock Option.
The Tax-Offset bonus shall be in the form of a cash payment equal to a
percentage of the difference between the exercise price and the lesser of (i)
the Fair Market Value on the date of exercise of the Common Stock with respect
to which the disqualifying disposition occurs or (ii) the amount realized from
such disqualifying disposition. Such percentage shall be set out in the Award
Agreement and shall be designed to offset the impact of additional taxes which
result from the disqualifying disposition. Notwithstanding the preceding
sentence, the Committee may reserve the right to from time to time change the
percentage applicable with respect to the Award Agreement. Notwithstanding the
foregoing, no Award Agreements entered into after the Listing Date may provide
for a Tax-Offset Bonus to any Participant.
4. STOCK APPRECIATION RIGHTS.
4.1 GRANTS. In its discretion, the Committee may grant Stock Appreciation
Rights concurrently with the grant of Options. A Stock Appreciation Right shall
extend to all or a portion of the shares covered by the related Option. A Stock
Appreciation Right shall entitle the Participant who holds the related Option,
upon exercise of the Stock Appreciation Right and surrender of the related
Option, or portion thereof, to the extent the Stock Appreciation Right and
related Option each were previously unexercised, to receive payment of an amount
determined pursuant to Section 4.3. Any Stock Appreciation Right granted in
connection with an Incentive Stock Option shall contain such terms as may be
required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder. In its discretion, the Committee may also
grant Stock Appreciation Rights independently of any Option subject to such
conditions as the Committee may in its absolute discretion provide.
4.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
(A) A Stock Appreciation Right granted concurrently with an Option
shall be exercisable only at such time or times, and to the extent, that the
related Option shall be exercisable and only when the Fair Market Value of the
stock subject to the related Option exceeds the exercise price of the related
Option.
(B) In the event that a Stock Appreciation Right granted concurrently
with an Option is exercised, the number of shares of Common Stock subject to the
related Option shall be charged against the maximum amount of Common Stock that
may be issued or transferred
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pursuant to Awards under this Plan. The number of shares subject to the Stock
Appreciation Right and the related Option of the Participant shall be reduced by
such number of shares.
(C) If a Stock Appreciation Right granted concurrently with an Option
extends to less than all the shares covered by the related Option and if a
portion of the related Option is thereafter exercised, the number of shares
subject to the unexercised Stock Appreciation Right shall be reduced only if and
to the extent that the remaining number of shares covered by such related Option
is less than the remaining number of shares subject to such Stock Appreciation
Right. The number of shares subject to unexercised SARs may also be reduced
proportionately.
(D) A Stock Appreciation Right granted independently of any Option
shall be exercisable pursuant to the Terms of the Award Agreement.
(E) In order to achieve the Plan's objective of encouraging ownership
of the Common Stock, the Committee may require the Stock Appreciation Rights can
only be exercised if the Participant uses all or a portion of any cash received
upon exercise of the Stock Appreciation Right to concurrently exercise all or a
portion of the Option he or she holds.
4.3 PAYMENT.
(A) Upon exercise of a Stock Appreciation Right and surrender of an
exercisable portion of the related option, the Participant shall be entitled to
receive payment of an amount determined by multiplying
(I) The difference obtained by subtracting the exercise price
per share of Common Stock under the related option from the Fair Market Value of
a share of Common Stock on the date of exercise of the Stock Appreciation Right,
by
(II) The number of shares with respect to which the Stock
Appreciation Right shall have been exercised.
(B) The Committee, in its sole discretion, may settle the amount
determined under paragraph (a) above solely in cash, solely in shares of Common
Stock (valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right), or partly in such shares and partly in cash, provided that
the Committee shall have determined that such exercise and payment are
consistent with applicable law. In any event, cash shall be paid in lieu of
fractional shares. Absent a determination to the contrary, all Stock
Appreciation Rights shall be settled in cash as soon as practicable after
exercise. The exercise price for the Stock Appreciation Right shall be the
exercise price of the related Option. Notwithstanding the foregoing, the
Committee may, in the Award Agreement, determine the maximum amount of cash or
stock or a combination thereof which may be delivered upon exercise of a Stock
Appreciation Right.
(C) Upon exercise of a Stock Appreciation Right granted independently
of any Option, the Participant shall be entitled to receive payment in cash of
an amount based on a percentage, specified in the Award Agreement, of the
difference obtained by subtracting the Fair Market Value per share of Common
Stock on the Award Date from the Fair Market Value per share of Common Stock on
the date of exercise of the Stock Appreciation Right.
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5. RESTRICTED STOCK AWARDS.
5.1 GRANTS. Subject to Section 2.4, the Committee may, in its discretion
grant one or more Restricted Stock Awards to any Eligible Person. Each
Restricted Stock Award Agreement shall specify the number of shares of Common
Stock to be issued to the Participant, the date of such issuance, the price, if
any, to be paid for such shares by the Participant and the restrictions imposed
on such shares. Shares of Restricted Stock shall be evidenced by a stock
certificate registered only in the name of the Participant, which stock
certificate shall bear a legend making appropriate reference to the restrictions
imposed and shall be held by the Corporation until the restrictions on such
shares shall have lapsed and those shares shall have thereby vested.
5.2 RESTRICTIONS.
(A) Shares of Common Stock included in Restricted Stock Awards may
not be sold, assigned, transferred, pledged or otherwise disposed of or
encumbered, either voluntarily or involuntarily, until such shares have vested.
(B) Participants receiving Restricted Stock shall be entitled to
dividend and voting rights for the shares issued even though they are not
vested, provided that such rights shall terminate immediately as to any
forfeited Restricted Stock.
(C) In the event that the Participant shall have paid cash in
connection with the Restricted Stock Award, the Award Agreement shall specify
whether and to what extent such cash shall be returned upon a forfeiture (with
or without an earnings factor).
6. PERFORMANCE SHARE AWARDS.
6.1 GRANTS. The Committee may, in its discretion, grant Performance Share
Awards to Eligible Persons based upon such factors as the Committee shall
determine. A Performance Share Award Agreement shall specify the number of
shares of Common Stock subject to the Performance Share Award, the price, if
any, to be paid for such shares by the Participant and the conditions upon which
issuance to the Participant shall be based.
7. OTHER PROVISIONS.
7.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
(A) Status as an Eligible Person shall not be construed as a
commitment that any Award will be made under this Plan to an Eligible Person or
to Eligible Persons generally.
(B) Nothing contained in this Plan (or in Award Agreements or in any
other documents related to this Plan or to Awards) shall confer upon any
Eligible Person or Participant any right to continue in the employ of the
Company or constitute any contract or agreement of employment, or interfere in
any way with the right of the Company to reduce such person's compensation or to
terminate the employment of such Eligible Person or Participant, with or without
cause, but nothing contained in this Plan or any document related thereto shall
affect any other contractual right of any Eligible Person or Participant.
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(C) Amounts payable pursuant to an Award shall be paid only to the
Participant or, in the event of the Participant's death, to the Participant's
Beneficiary or, in the event of the Participant's Total Disability, to the
Participants Personal Representative or, if there is none, to the Participant.
Other than by will or the laws of descent and distribution, no benefit payable
under, or interest in, this Plan or in any Award shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any such attempted action shall be void and no such benefit or
interest shall be, in any manner, liable for, or subject to, debts, contracts,
liabilities, engagements or torts of any Eligible Person, Participant or
Beneficiary. The Committee shall disregard any attempted transfer, assignment
or other alienation prohibited by the preceding sentence and shall pay or
deliver such cash or shares of Common Stock in accordance with the provisions of
this Plan.
(D) No Participant, Beneficiary or other person shall have any right,
title or interest in any fund or in any specific asset (including shares of
Common Stock) of the Company by reason of any Award granted hereunder. Neither
the provisions of this Plan (or of any documents related hereto), nor the
creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive an Award hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Company.
7.2 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(A) If the outstanding shares of Common Stock are increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Corporation through a reorganization or merger in
which the Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to Awards. A corresponding
adjustment to the consideration payable with respect to Awards granted prior to
any such change and to the price, if any, paid in connection with Restricted
Stock Awards or Performance Share Awards shall also be made. Any such
adjustment, however, shall be made without change in the total payment, if any,
applicable to the portion of the Award not exercised but with a corresponding
adjustment in the price for each share. Corresponding adjustments shall be made
with respect to Stock Appreciation Rights based upon the adjustments made to the
Options to which they are related or, in the case of Stock Appreciation Rights
granted independently of any Option, based upon the adjustments made to Common
Stock.
(B) Upon the dissolution or liquidation of the Corporation, the Plan
shall terminate, and any outstanding Awards shall terminate and be forfeited.
(C) Upon a reorganization, merger or consolidation of the Corporation
with one or more corporations as a result of which the Corporation is not the
surviving corporation which occurs prior to the Listing Date, the Plan shall
terminate, and any outstanding Awards shall terminate and be forfeited.
Notwithstanding the foregoing, the Board may provide in writing in connection
with, or in contemplation of, any such transaction for any or all of the
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following alternatives (separately or in combinations): (i) for the assumption
by the successor corporation of the Awards theretofore granted or the
substitution by such corporation for such Awards of awards covering the stock of
the successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; (ii) for the
continuance of the Plan by such successor corporation in which event the Plan
and the Awards shall continue in the manner and under the terms so provided; or
(iii) for the payment in cash or shares of Common Stock in lieu of and in
complete satisfaction of such Awards.
(D) After the Listing Date, in the event of a (i) a sale, lease or
other disposition of all or substantially all of the assets of the Company, (ii)
a merger or consolidation in which the Company is not the surviving corporation
or (iii) a reverse merger in which the Company is the surviving corporation but
the shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then any surviving corporation or acquiring
corporation shall assume any Awards outstanding under the Plan or shall
substitute similar awards (including an award to acquire the same consideration
paid to the shareholders in the transaction described in this subsection 7.2(d)
for those outstanding under the Plan. In the event any surviving corporation or
acquiring corporation refuses to assume such Awards or to substitute similar
awards for those outstanding under the Plan, then with respect to Awards held by
Participants whose employment by the Company has not terminated, the vesting of
such Awards (and, if applicable, the time during which such Awards may be
exercised) shall be accelerated in full, and the Awards shall terminate if not
exercised (if applicable) at or prior to such event. With respect to any other
Awards outstanding under the Plan, such Awards shall terminate if not exercised
(if applicable) prior to such event.
(E) In adjusting Awards to reflect the changes described in this
Section 7.2, or in determining that no such adjustment is necessary, the Board
may rely upon the advice of independent counsel and accountants of the
Corporation, and the determination of the Board shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
7.3 TERMINATION OF EMPLOYMENT.
(A) If the Participant's employment by the Company terminates for any
reason other than Retirement, death or Total Disability, the Participant shall
have, subject to earlier termination pursuant to or as contemplated by Section
3.3, three months from the date of termination of employment to exercise any
Option to the extent it shall have become exercisable on that date, and any
option not exercisable on that date shall terminate. Notwithstanding the
preceding sentence, in the event the Participant is discharged for cause as
determined by the Committee in its sole discretion, all Options shall lapse
immediately upon such termination of employment.
(B) If the Participant's employment by the Company terminates as a
result of Retirement or Total Disability, the Participant or Participant's
Personal Representative, as the case may be, shall have, subject to earlier
termination pursuant to or as contemplated by Section 3.3, 12 months from the
date of termination of employment (or 3 months from the date of termination of
employment as a result of Retirement with respect to an Incentive Stock Option)
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to exercise any Option to the extent it shall have become exercisable by that
date, and any Option not exercisable on that date shall terminate.
(C) If the Participant's employment by the Company terminates as a
result of death while the Participant is employed by the Company or during the
12 month period referred to in subsection (b) above, the Participant's Option
shall be exercisable by the Participant's Beneficiary, subject to earlier
termination pursuant to or as contemplated by Section 3.3, during the 12 month
period or such shorter period as is provided in the Award Agreements following
the Participant's death, as to all or any part of the shares of Common Stock
covered thereby including all shares as to which the option would not otherwise
be exercisable.
(D) Each Stock Appreciation Right granted concurrently with an Option
shall have the same termination provisions and exercisability periods as the
Option to which it relates. The termination provisions and exercisability
periods of any Stock Appreciation Right granted independently of an Option shall
be established in accordance with Section 4.2(d). The exercisability period of a
Stock Appreciation Right shall not exceed that provided in Section 3.3 or in the
related Award Agreement and the Stock Appreciation Right shall expire at the end
of such exercisability period.
(E) In the event of termination of employment with the Company for
any reason, (i) shares of Common Stock subject to the Participant's Restricted
Stock Award shall be forfeited in accordance with the provisions of the related
Award Agreement to the extent such shares have not become vested on that date;
and (ii) shares of Common Stock subject to the Participant's Performance Share
Award shall be forfeited in accordance with the provisions of the related Award
Agreement to the extent such shares have not been issued or become issuable on
that date.
(F) In the event of termination of employment with the Company for
any reason, other than discharge for cause, the Committee may, in its
discretion, increase the portion of the Participant's Award available to the
Participant, or Participant's Beneficiary or Personal Representative, as the
case may be, or extend the time of exercise of the rights granted hereunder
(subject to Section 3.3 hereto), upon such terms as the Committee shall
determine.
(G) If an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 7.3 to be a termination of employment of
each employee of that entity.
(H) Upon forfeiture of a Restricted Stock Award pursuant to this
Section 7.3, the Participant, or his or her Beneficiary or Personal
Representative, as the case may be, shall transfer to the Corporation the
portion of the Restricted Stock Award not vested at the date of termination of
employment, without payment of any consideration by the Company for such
transfer unless the Participant paid a purchase price in which case repayment,
if any, of that price shall be governed by the Award Agreement. Notwithstanding
any such transfer to the Corporation, or failure, refusal or neglect to
transfer, by the Participant, or his or her Beneficiary or Personal
Representative, as the case may be, such nonvested portion of any Restricted
Stock Award shall be deemed transferred automatically to the Corporation on the
date of termination of employment. The Participant's original acceptance of the
Restricted Stock Award shall constitute his or her appointment of the
Corporation and each of its authorized representatives as
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attorney(s)-in-fact to effect such transfer and to execute such documents as the
Corporation or such representatives deem necessary or advisable in connection
with such transfer.
7.4 ACCELERATION OF AWARDS. Unless prior to an Event (including by
agreement set forth in the Award Agreement) the Committee determines that, upon
its occurrence, there shall be no acceleration of Awards or determines those
Awards which shall be accelerated and the extent to which they shall be
accelerated, upon the occurrence of an Event (i) each Option and each Stock
Appreciation Right shall become immediately exercisable to the full extent
theretofore not exercisable, (ii) Restricted Stock shall immediately vest free
of restrictions and (iii) the number of shares covered by each Performance Share
Award shall be issued to the Participant. Notwithstanding the foregoing, Awards
granted after the Listing Date shall not accelerate upon the occurrence of an
Event except as provided in Section 7.2(d).
7.5 GOVERNMENT REGULATIONS. This Plan, the granting of Awards under this
Plan and the issuance or transfer of shares of Common Stock (and/or the payment
of money) pursuant thereto are subject to all applicable federal and state laws,
rules and regulations and to such approvals by any regulatory or governmental
agency (including without limitation "no action" positions of the Commission)
which may, in the opinion of counsel for the Corporation, be necessary or
advisable in connection therewith. Without limiting the generality of the
foregoing, no Awards may be granted under this Plan, and no shares shall be
issued by the Corporation, nor cash payments made by the Corporation, pursuant
to or in connection with any such Award, unless and until, in each such case,
all legal requirements applicable to the issuance or payment have, in the
opinion of counsel to the Corporation, been complied with. In connection with
any stock issuance or transfer, the person acquiring the shares shall, if
requested by the Corporation, give assurances satisfactory to counsel to the
Corporation in respect of such matters as the Corporation may deem desirable to
assure compliance with all applicable legal requirements.
7.6 TAX WITHHOLDING.
(A) Upon the disposition by a Participant or other person of shares
of Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to satisfaction of the holding period requirements of Section 422 of the
Code, or upon the exercise of a Nonqualified Stock Option, the exercise of a
Stock Appreciation Right, the vesting of a Restricted Stock Award, the payment
of a Performance Share Award or payment of a Tax-Offset Bonus, the Company shall
have the right to (i) require such Participant or such other person to pay by
cash, or certified or cashiers check payable to the Company, the amount of any
taxes which the Company may be required to withhold with respect to such
transactions or (ii) deduct from amounts paid in cash the amount of any taxes
which the Company may be required to withhold with respect to such cash amounts.
The above notwithstanding, in any case where a tax is required to be withheld in
connection with the issuance or transfer of shares of Common Stock under this
Plan, the Participant may elect, pursuant to such rules as the Committee may
establish, to have the Company reduce the number of such shares issued or
transferred by the appropriate number of shares to accomplish such withholding;
provided, the Committee may impose such conditions on the payment of any
withholding obligations as may be required to satisfy applicable regulatory
requirements, including, without limitation, Rule 16b-3 promulgated by the
Commission pursuant to the Exchange Act.
14.
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(B) The Committee may, in its discretion, permit a loan from the
Company to a Participant in the amount of any taxes which the Company may be
required to withhold with respect to shares of Common Stock received pursuant to
a transaction described in subsection (a) above. Such a loan will be for a term,
at a rate of interest and pursuant to such other terms and rules as the
Committee may establish.
7.7 AMENDMENT, TERMINATION AND SUSPENSION.
(A) The Board shall have the authority at any time to terminate or,
from time to time, amend or modify or suspend this Plan (or any part hereof)
without obtaining shareholder approval to the fullest extent permitted by Rule
16b-3 (or any successor rule) promulgated by the Commission pursuant to the
Exchange Act, except to the extent the Board determines that such shareholder
approval is required or is made advisable by other applicable law or regulation
(including, without limitation, Section 162(m) of the Code and the regulations
promulgated thereunder), in which case such amendment shall be effective once
approved by the Board and a majority of the shareholders. In addition, the
Committee may, from time to time, amend or modify any provision of this Plan
except Section 7.4 and, with the consent of the Participant, make such
modifications of the terms and conditions of such Participant's Award as it
shall deem advisable. The Committee, with the consent of the Participant, may
also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the original Award shall be reestablished at a price
established on the effective date of the amendment. No modification of any other
term or provision of any option which is amended in accordance with the
foregoing shall be required, although the Committee may, in its discretion, make
such further modifications of any such option as are not inconsistent with or
prohibited by the Plan. No Awards may be granted during any suspension of this
Plan or after its termination.
(B) In the case of Awards issued before the effective date of any
amendment, suspension or termination of this Plan, such amendment, suspension or
termination of the Plan shall not, without specific action of the Board or the
Committee and the consent of the Participant, in any way modify, amend, alter or
impair any rights or obligations under any Award previously granted under the
Plan.
7.8 PRIVILEGES OF STOCK OWNERSHIP; NONDISTRIBUTIVE INTENT. A Participant
shall not be entitled to the privilege of stock ownership as to any shares of
Common Stock not actually issued to him. Upon the issuance and transfer of
shares to the Participant, unless a registration statement is in effect under
the Securities Act, relating to such issued and transferred Common Stock and
there is available for delivery a prospectus meeting the requirements of Section
10 of the Securities Act, the Common Stock may be issued and transferred to the
Participant only if he represents and warrants in writing to the Corporation
that the shares are being acquired for investment and not with a view to the
resale or distribution thereof. No shares shall be issued and transferred
unless and until there shall have been full compliance with any then applicable
regulatory requirements (including those of exchanges upon which any Common
Stock of the Corporation may be listed).
7.9 EFFECTIVE DATE OF THE PLAN. This Plan has been approved by unanimous
consent of the entire Board of the Kushner-Locke Company, the Corporation's
eighty percent (80%)
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shareholder, and approved by the Board of the Corporation and by the
Shareholders, and is effective July 23, 1998.
7.10 TERM OF THE PLAN. Unless previously terminated by the Board, this
plan shall terminate at the close of business on June 1, 2008, and no Awards
shall be granted under it thereafter, but such termination shall not affect any
Award theretofore granted.
7.11 GOVERNING LAW. This Plan and the documents evidencing Awards and all
other related documents shall be governed by, and construed in accordance with,
the laws of the State of California. If any provision shall be held by a court
of competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue to be fully effective.
16.
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EXHIBIT 10.2.1
FORM OF STOCK OPTION AWARD AGREEMENT
THIS AWARD AGREEMENT is dated as of _______, 1998, by and between 800-U.S.
SEARCH, a California corporation (the "Corporation") and __________________
("Participant").
WITNESSETH
WHEREAS, pursuant to the Corporation's 1998 Stock Incentive Plan (the
"Plan"), the Committee (as defined in the Plan), committed to grant to the
Participant, effective as of the date set forth above (for purposes of such
grant, the "Award Date"), a non-qualified stock option (the "Option") to
purchase all or any part of ___ shares of Common Stock, without par value, of
the Corporation (the "Common Stock") upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived herefrom, the parties hereto agree
as follows:
1. GRANT OF OPTION. The Corporation has granted to the Participant as a
matter of separate inducement and agreement in connection with the Participant's
employment with, or other services to, the Corporation, but not in lieu of any
salary or other compensation for such services, the right and option to
purchase, in accordance with the Plan and on the terms and conditions
hereinafter and therein set forth, all or any part of an aggregate of ___ shares
of Common Stock at the exercise price of $___ per share (the "Price"),
exercisable from time to time, subject to the provisions of this Award Agreement
prior to the close of business on the date which is ten years from the date
hereof, unless earlier terminated pursuant to the provisions of the Plan upon
termination of Participant's relationship with the Corporation, which provisions
are incorporated herein by this reference (the "Expiration Date").
2. EXERCISABILITY OF OPTION. Except as otherwise provided in this Award
Agreement, the Option shall vest from time to time in accordance with Schedule A
hereto, provided, however, that the Option may not be exercised as to less than
__ shares at any one time unless the number of shares purchased is the total
number at the time available for purchase under the Option. The Option may be
exercised only as to whole shares; fractional share interests shall be
disregarded except that they may be accumulated.
3. METHOD OF EXERCISE AND PAYMENT.
(A) EXERCISE OF OPTION. Each exercise of the Option shall be by means
of written notice of exercise duly delivered to the Corporation, specifying the
number of whole shares with respect to which the Option is then being exercised,
together with any written statements required pursuant hereto or under the Plan
and payment of the Price in full in cash or by check payable to the order of the
Corporation. The Participant may, in lieu of payment of a portion or all of the
Price in cash or by check, also deliver in payment of a portion or all of the
Price, certificates evidencing Common Stock valued at the aggregate amount of
such portion or all of the Price, each share of Common Stock shall be valued at
the Fair Market Value on the date of exercise of the Option. At the option of
the Committee, the Participant may, in lieu of payment of a portion or all of
the Price in cash, by check or in certificates evidencing Common
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Stock, pay for all or a portion of the Price by means of a promissory note to
the Corporation, on such terms and conditions, including as to security, as the
Committee may determine.
4. CONTINUANCE OF EMPLOYMENT. Nothing contained in this Award Agreement
or in the Plan shall confer upon the Participant any right to continue in the
employ of, or to continue rendering services to, the Corporation or constitute
any contract or agreement of engagement or employment. The Participant
acknowledges that the Corporation has the right to terminate the Participant's
employment or services at will except as may be otherwise provided by separate
agreement. Nothing contained in this Award Agreement or in the Plan shall
interfere in any way with the right of the Corporation to (i) terminate the
employment or services of the Participant at any time for any reason whatsoever,
with or without cause, or (ii) reduce the Participant's compensation.
5. NON-ASSIGNABILITY OF OPTION. Interest in the Option shall not be
subject to sale, transfer, pledge, assignment, encumbrance, change or alienation
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code, regardless of any
community property or other interest therein of the Participant's spouse or such
spouse's successor in interest. In the event that the spouse of the Participant
shall have acquired a community property interest in the Option, the
Participant, or his permitted transferees, may exercise it on behalf of the
spouse of the Participant or such spouse's successor in interest.
6. ADJUSTMENTS UPON SPECIFIED CHANGES. Upon the occurrence of certain
events relating to the Corporation's stock as set forth in the Plan, including
stock splits, combinations, extraordinary cash dividends or mergers in which the
Corporation is not the Surviving Corporation, adjustments shall be made in the
number and kind of shares that may be issuable under, or in the consideration
payable with respect to, the Option as such adjustments are set forth in the
Plan.
7. ACCELERATION. Upon the occurrence of certain Events, including a
Change of Control, the Option shall become immediately exercisable to the full
extent theretofore not either vested or exercisable unless prior to the Event
the Board determines otherwise.
8. APPLICATION OF SECURITIES LAWS.
(A) No shares of Common Stock may be purchased pursuant to the Option
unless and until any then applicable requirements of the Commission, and any
other regulatory agencies, including any state securities agencies having
jurisdiction over the Corporation or such issuance, and any exchanges upon which
the Common Stock may be listed, shall have been fully satisfied. The Participant
represents, agrees and certifies that:
(1) The Participant understands that the Option and the shares
issuable upon exercise of the Option have not been registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities or blue
sky law in reliance on available exemptions and that the Corporation is relying
upon the Participant's representations and warranties herein in availing itself
of said exemptions.
2.
<PAGE>
(2) The Participant has had a full opportunity to ask questions
of and receive answers from the Chief Financial Officer and the President of the
Company concerning the terms and conditions of this investment. The Participant
has received and reviewed carefully a copy of the Plan.
(3) The Participant (A) can bear the economic risk of losing the
Participant's entire investment; and (B) has adequate means of providing for the
Participant's current needs and possible personal contingencies.
(4) The Option hereby granted to the Participant is being
acquired solely for the Participant's own account for investment purposes, and
is not being purchased with a view to or for the purposes of the resale,
transfer or other distribution thereof; and the Participant has no present plans
to enter into any contract, undertaking, agreement or arrangement for such
resale, transfer or distribution and the Participant further agrees that the
Option and Common Stock acquired pursuant to the exercising of the Option will
not be resold, transferred or otherwise distributed without (a) first having
presented to the Corporation a written opinion of legal counsel in form and
substance satisfactory to the Corporation's counsel indicating the proposed
transfer will not be in violation of any of the provisions of the Act and
applicable state securities laws and the rules and regulations promulgated
thereunder or (b) a registration statement covering the resale of such Common
Stock being effective. The Participant recognizes that a legend reading
substantially as follows shall be placed on all certificates representing the
Common Stock as well as on the Option issued pursuant hereto and a stop order
shall be placed in the stock register of the Corporation against a transfer of
same in accordance with the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES OR BLUE
SKY LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN EXEMPTION FROM REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS.
(5) The Participant either has a preexisting personal or business
relationship with the Corporation or any of its officers, directors or
controlling persons, or by reason of the Participant's business or financial
experience or the business or financial experience of its professional advisors
who are unaffiliated with and who are not compensated by the Corporation or any
affiliated or selling agent, directly or indirectly, can be reasonably assumed
to have the capacity to protect his own interests in connection with acquisition
of the Option and exercise thereof.
The foregoing representations and warranties are true and accurate as of
the Award Date and of the date of delivery of Common Stock acquired pursuant to
the Option and shall survive such date and such delivery. If, in any respect,
such representations and warranties shall not be true and accurate as of any of
the foregoing dates, the Participant shall give written notice of
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such fact to the Corporation specifying which representations and warranties are
not true and accurate and the reasons therefor.
(B) The Committee may impose such conditions on the Option or on its
exercise or acceleration or on the payment of any withholding obligation
(including, without limitation, restricting the time of exercise to specified
periods) as may be required to satisfy applicable regulatory requirements,
including, without limitation, Rule 16b-3 (or any successor rule) promulgated by
the Commission pursuant to the Exchange Act.
9. NOTICES. Any notice to be given to the Corporation under the terms of
the Award Agreement or pursuant to the Plan shall be in writing and addressed to
the Secretary of the Corporation at its principal office and any notice to be
given to the Participant shall be sent to the Participant at the address given
beneath the Participant's signature hereto, or at such other address as either
party may hereafter designate in writing to the other party. Any such notice
shall be deemed to have been duly given on the date of delivery, if delivered by
hand, or 3 days after deposit into U.S. mails of a notice sent by registered or
certified mail (postage and registry or certification fee prepaid) or the date
after being timely delivered to a recognized messenger service or overnight
courier for next day delivery (delivery charges prepaid).
10. EFFECT OF AWARD AGREEMENT. The Award Agreement shall be assumed by,
be binding upon and inure to the benefit of any successor or successors of the
Corporation to the extent provided in the Plan and to any permitted successor,
assign and transferee of the Participant.
11. TAX WITHHOLDING. The provisions of the Plan are hereby incorporated
and shall govern any withholding that the Corporation is required to make with
respect to an exercise of the Option as well as the Corporation's right to
condition a transfer of Common Stock upon compliance with the applicable
withholding requirements of federal, state and local authorities. No Common
Stock acquired pursuant to an exercise of the Option may be transferred to the
Participant or any permitted successor, assign or transferee unless and until
the Corporation has withheld, or has received payment from the Participant or
such permitted successor, assign or transferee of, all amounts the Corporation
is so required to withhold.
12. TERMS OF THE PLAN GOVERN. Except with respect to terms specifically
set forth in this Award Agreement, the Award and this Award Agreement are
subject to, and the Corporation and the Participant agree to be bound by, all of
the terms and conditions of the Plan. Capitalized terms not otherwise defined
herein shall have the respective meanings assigned to them in the Plan. The
rights of the Participant are subject to limitations, adjustments,
modifications, suspension and termination in certain circumstances and upon the
occurrence of certain conditions as set forth in the Plan.
13. LAWS APPLICABLE TO CONSTRUCTION. The interpretation, performance and
enforcement of the Award and this Award Agreement shall be governed by the laws
of the State of California without giving effect to any conflict of law
provisions.
4.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Award Agreement to be
executed on its behalf by a duly authorized officer and the Participant has
hereunto set his hand as of the date and year first above written.
800-U.S. SEARCH
By:_________________________________
Name:_______________________________
Title:______________________________
PARTICIPANT
____________________________________
____________________________________
(Address)
____________________________________
(City, State, Zip Code)
____________________________________
(Social Security Number)
5.
<PAGE>
SCHEDULE A
VESTING SCHEDULE
<PAGE>
EXHIBIT 10.3
800-U.S. SEARCH
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS FEBRUARY 26, 1999
APPROVED BY SHAREHOLDERS [___________]
EFFECTIVE DATE: FEBRUARY 26, 1999
1. PURPOSES.
(A) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(B) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(A) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(B) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(C) "ANNUAL MEETING" means the annual meeting of the shareholders of the
Company.
(D) "BOARD" means the Board of Directors of the Company.
(E) "CODE" means the Internal Revenue Code of 1986, as amended.
(F) "COMMON STOCK" means the common stock of the Company.
(G) "COMPANY" means 800-U.S. Search, a California corporation.
(H) "CONSULTANT" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated
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by the Company for their services as Directors or Directors of the Company who
are merely paid a director's fee by the Company for their services as Directors.
(I) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(J) "DIRECTOR" means a member of the Board of Directors of the Company.
(K) "EMPLOYEE" means any person employed by the Company or an Affiliate. Mere
service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(L) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(M) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock
determined as follows:
(I) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(II) In the absence of such markets for the Common Stock, the Fair Market
Value shall be determined in good faith by the Board.
(N) "INITIAL GRANT" means an Option granted to a Non-Employee Director who
meets the specified criteria pursuant to subsection 6(a) of the Plan.
(O) "NON-EMPLOYEE DIRECTOR" means a Director who is not employed by the
Company or an Affiliate.
(P) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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(Q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(R) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(S) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(T) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(U) "PLAN" means this 800-U.S. Search 1999 Non-Employee Directors' Stock
Option Plan.
(V) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(W) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(A) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(B) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(I) To determine the provisions of each Option to the extent not
specified in the Plan.
(II) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(III) To amend the Plan or an Option as provided in Section 12.
(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(A) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate three hundred and fifty (350) shares
of Common Stock.
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(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Option shall revert to and
again become available for issuance under the Plan.
(C) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
Nondiscretionary Options as set forth in section 6 shall be granted under
the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
(A) INITIAL GRANTS. Without any further action of the Board, each Non-
Employee Director shall be granted the following Options:
(I) On February 26, 1999, each person who is then a Non-Employee
Director automatically shall be granted an Initial Grant to purchase thirty nine
(39) shares of Common Stock on the terms and conditions set forth herein.
(II) After February 26, 1999, each person who is elected or appointed
for the first time to be a Non-Employee Director automatically shall, upon the
date of his or her initial election or appointment to be a Non-Employee Director
by the Board or shareholders of the Company, be granted an Initial Grant to
purchase thirty nine (39) shares of Common Stock on the terms and conditions set
forth herein.
(B) ANNUAL GRANTS. On day prior to each Annual Meeting commencing with the
Annual Meeting in 2000, each person who is then a Non-Employee Director
automatically shall be granted an Annual Grant to purchase ten (10) shares of
Common Stock on the terms and conditions set forth herein; provided, however,
that if the person has not been serving as a Non-Employee Director for the
entire period since the preceding an Annual Meeting, then the number of shares
subject to such Annual Grant shall be reduced pro rata for each full quarter
prior to the date of grant during which such person did not serve as a Non-
Employee Director.
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(A) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
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(B) EXERCISE PRICE. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(C) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock, (ii) deferred payment or (iv) any other form of
legal consideration that may be acceptable to the Board and provided in the
Option Agreement; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(D) TRANSFERABILITY. An Option shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(E) VESTING GENERALLY. Options shall vest and become exercisable as
follows:
(I) Initial Grants shall provide for vesting of 1/3rd of the shares
on each anniversary of the date of the grant.
(II) Annual Grants shall provide for vesting of 1/12th of the shares
each month after the date of the grant.
(F) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death), the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following the termination of the Optionholder's Continuous Service, or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.
(G) EXTENSION OF TERMINATION DATE. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death) would be prohibited at any time solely because the
issuance of shares would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier
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of (i) the expiration of the term of the Option set forth in subsection 7(a) or
(ii) the expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(H) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
8. COVENANTS OF THE COMPANY.
(A) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(A) SHAREHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(B) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause,
6
<PAGE>
(ii) the service of a Consultant pursuant to the terms of such Consultant's
agreement with the Company or an Affiliate or (iii) the service of a Director
pursuant to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or the
Affiliate is incorporated, as the case may be.
(C) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(D) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject both to the Plan pursuant to
subsection 4(a) and to the nondiscretionary Options specified in Section 5, and
the outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such outstanding
Options. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible
7
<PAGE>
securities of the Company shall not be treated as a transaction "without receipt
of consideration" by the Company.)
(B) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(C) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER.
In the event of (i) a sale of all or substantially all of the assets of the
Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options (including an option to acquire the
same consideration paid to the shareholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation refuses to assume such Options or
to substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options shall be accelerated in full, and the
Options shall terminate if not exercised at or prior to such event. With
respect to any other Options outstanding under the Plan, such Options shall
terminate if not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(B) SHAREHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for shareholder approval.
(C) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(D) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(A) PLAN TERM. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or after it is
terminated.
8
<PAGE>
(B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective the date the Plan is adopted by the Board
but no Option shall be exercised unless and until the Plan has been approved by
the shareholders of the Company, which approval shall be within twelve (12)
months before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
9
<PAGE>
EXHIBIT 10.3.1
800-U.S. SEARCH
NONSTATUTORY STOCK OPTION
(1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)
[NAME] , Optionee:
800-U.S. SEARCH (the "Company"), pursuant to its 1999 Non-Employee
Directors' Stock Option Plan (the "Plan") has on _____________, _____ granted to
you, the optionee named above, an option to purchase shares of the common stock
of the Company ("Common Stock"). This option is not intended to qualify and
will not be treated as an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's Non-
Employee Directors (as defined in the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
thirty nine (39). Subject to the limitations contained herein, this option
shall be exercisable in accordance with the Plan.
2. The exercise price of this option is ($ ) per share, being
the Fair Market Value (as defined in the Plan) of the Common Stock on the date
of grant of this option.
3. This option may be exercised, to the extent specified in the Plan, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to Section 10 of
the Plan. This option may not be exercised for any number of shares which would
require the issuance of anything other than whole shares.
By exercising this option you agree that the Company may require you to
enter an arrangement providing for the cash payment by you to the Company of any
tax withholding obligation of the Company arising by reason of the exercise of
this option or the lapse of any substantial risk of forfeiture to which the
shares are subject at the time of exercise.
4. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed
1.
<PAGE>
to you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
5. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 7 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the day of , .
Very truly yours,
800-U.S. SEARCH
By:_________________________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
1999 Non-Employee Directors' Stock Option Plan
2.
<PAGE>
The undersigned:
(A) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(B) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock options plans of the Company, and (ii) the following agreements
only:
None_______________________________________________
(Initial)
Other______________________________________________
______________________________________________
______________________________________________
___________________________________________
OPTIONEE
___________________________________________
Address
___________________________________________
___________________________________________
3.
<PAGE>
EXHIBIT 10.3.2
NOTICE OF EXERCISE
800-U.S. Search
9107 Wilshire Blvd.
Suite 700
Beverly Hills, CA 90210 Date of Exercise: _______________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the
number of shares for the price set forth below.
Type of option (check one): Nonstatutory
Stock option dated: _______________
Number of shares as
to which option is
exercised: _______________
Certificates to be
issued in name of: _______________
Total exercise price: $______________
Cash payment delivered
herewith: $______________
Value of ________ shares of
800-U.S. Search common
stock delivered herewith: $______________
By this exercise, I agree (i) to provide such additional documents as you
may require pursuant to the terms of the 1999 Non-Employee Directors' Stock
Option Plan and (ii) to provide for the payment by me to you (in the manner
designated by you) of your withholding obligation, if any, relating to the
exercise of this option.
I hereby make the following certifications and representations with respect
to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
_____________________
/1/ Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
1.
<PAGE>
I acknowledge that the Shares have not been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and are deemed to constitute
"restricted securities" under Rule 701 and "control securities" under Rule 144
promulgated under the Securities Act. I warrant and represent to the Company
that I have no present intention of distributing or selling said Shares, except
as permitted under the Securities Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at
least ninety days (90) after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the Shares
subject to the provisions of the Option shall have endorsed thereon appropriate
legends reflecting the foregoing limitations, as well as any legends reflecting
restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or
applicable securities laws.
I further agree that, if required by the Company (or a representative of the
underwriters) in connection with the first underwritten registration of the
offering of any securities of the Company under the Securities Act, I will not
sell, dispose of, transfer, make any short sale of, grant any option for the
purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, any Shares or other securities of the Company held by
me, for a period of time specified by the underwriter(s) (not to exceed one
hundred eighty (180) days) following the effective date of the registration
statement of the Company filed under the Securities Act. I further agree to
execute and deliver such other agreements as may be reasonably requested by the
Company and/or the underwriter(s) that are consistent with the foregoing or that
are necessary to give further effect thereto. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to my
Shares until the end of such period.
Very truly yours,
_______________________________________
2.
<PAGE>
EXHIBIT 10.4
STANDARD OFFICE LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, January 24
------------
__________, 1996, is made by and between Daishin U.S.A. Co., Ltd.
-----------------------------------
___________________________________________, (herein called "Lessor") and 800
------
U.S. Search Inc.
- ----------------------------------------------------------------------, doing
business under the name of ____________________________________, (herein called
"Lessee").
1.2 PREMISES: Suite Number(s) 700 , 7th , floors, consisting of
--------- -----------
approximately 8,000 sq. feet, more or less, as defined in paragraph 2 and as
-------------
shown on Exhibit "A" hereto (the "Premises).
1.3 BUILDING: Commonly described as being located at 9107 Wilshire
---------------------
Boulevard in the City of Beverly Hills
- ------------------------------- -----------------------------------
___________________________________County of Los Angeles
------------------------------------
___________________________________State of California
-------------------------------------
_________, more particularly described in Exhibit ====== hereto, and as defined
in paragraph 2.
1.4 USE: General Office
-----------------------------------------------------------------
________________________________________________________________________________
_____________,subject to paragraph 6.
1.5 TERM: Five (5) years commencing February 15,
-------------------- --------------------------------
1996 ("Commencement Date") and ending February 14, 2001
- -------- --------------------------------------
_________________, as defined in paragraph 3.
1.6 BASE RENT: See paragraph 58 of Addendum per
------------------------------------------------
month, payable on the __________ day of each month, per paragraph 4.1 __________
________________________________
________________________________________________________________________________
1.7 BASE RENT INCREASE: On See paragraph 58 of Addendum
----------------------------------------------
__________ the monthly Base Rent payable under paragraph 1.6 above shall be
adjusted as provided in paragraph 4.3 below.
1.8 RENT PAID UPON EXECUTION: $17,650.00
--------------------------------------------
______
for the first two (2) months Base Rent and $2,000 to be applied to the sixth
- --------------------------------------------------------------------------------
(6th) month's Base Rent of the initial lease term.
- --------------------------------------------------------------------------------
1.9 SECURITY DEPOSIT: Thirteen Thousand Six Hundred Dollars ($13,600.00)
----------------------------------------------------
<PAGE>
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 7 % as defined in
----
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises", including rights to the Common Areas as hereinafter specified.
2.2 VEHICLE PARKING. So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use ========== parking spaces
in the Office Building Project at the monthly rate applicable from time to time
for monthly parking as set by Lessor and/or its licensee. See paragraph 50 of
Addendum
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $posted
------
rates per month at the commencement of the term of this Lease, and is subject to
- -----
change upon five (5) days prior written notice to Lessee. Monthly parking fees
shall be payable one month in advance prior to the first day of each calendar
month.
2.2.3 COMMON AREAS-DEFINITION. The term "Common Areas" is defined
as all areas and facilities outside the Premises and within the exterior
boundary line of the Office Building Project that are provided and designated by
the Lessor from time to time for the general non-exclusive use of Lessor, Lessee
and of other lessees of the Office Building Project and their respective
employees, suppliers, shippers, customers and invitees, including but not
limited to common entrances, lobbies, corridors, stairways and stairwells,
public restrooms, elevators, escalators, parking areas to the extent not
otherwise prohibited by this Lease, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped areas and
decorative walls.
2.3 COMMON AREAS-RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right from
2
<PAGE>
time to time, to modify, amend and enforce said rules and regulations. Lessor
shall not be responsible to Lessee for the non-compliance with said rules and
regulations by other lessees, their agents, employees and invitees of the Office
Building Project.
2.4 COMMON AREAS-CHANGES. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(A) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(B) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(C) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(D) To add additional buildings and improvements to the Common
Areas;
(E) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(F) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged
3
<PAGE>
from all obligations hereunder; provided, however, that, as to Lessee's
obligations, Lessee first reimburses Lessor for all costs incurred for Non-
Standard Improvements and, as to Lessor's obligations, Lessor shall return any
money previously deposited by Lessee (less any offsets due Lessor for Non-
Standard Improvements); and provided further, that if such written notice by
Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease hereunder shall terminate and be of no further force
or effect.
3.2.1 POSSESSION TENDERED-DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be
deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
not pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in paragraph 1.8 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing. See Paragraph 58 of
Addendum.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined,
of the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase",
in accordance with the following provisions:
(A) "Lessee's Share" is defined, for purposes of this Lease, as
the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been
4
<PAGE>
determined by dividing the approximate square footage of the Premises by the
total approximate square footage of the rentable space contained in the Office
Building Project. It is understood and agreed that the square footage figures
set forth in the Basic Lease Provisions are approximations which Lessor and
Lessee agree are reasonable and shall not be subject to revision except in
connection with an actual change in the size of the Premises or a change in the
space available for lease in the Office Building Project.
(B) "Base Year" is defined as the calendar year in which the
Lease term commences.
(C) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(D) "Operating Expenses" is defined, for purposes of this Lease,
to include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(I) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window
coverings, and including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped
areas, striping, bumpers, irrigation systems, Common
Area lighting facilities, building exteriors and roofs,
fences and gates;
bb) All heating, air conditioning, plumbing,
electrical systems, life safety equipment,
telecommunication and other equipment used in common
by, or for the benefit of, lessees or occupants of the
Office Building Project, including elevators and
escalators, tenant directories, fire detection systems
including sprinkler system maintenance and repair.
(II) Trash disposal, janitorial and security services;
(III) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense";
(IV) The cost of the premiums for the liability and
property insurance policies to be maintained by Lessor under paragraph 8 hereof;
5
<PAGE>
(V) The amount of the real property taxes to be paid
by Lessor under paragraph 10.1 hereof;
(VI) The cost of water, sewer, gas, electricity, and
other publicly mandated services to the Office Building Project;
(VII) Labor, salaries and applicable fringe benefits
and costs, materials, supplies and tools, used in maintaining and/or cleaning
the Office Building Project and accounting and a management fee attributable to
the operation of the Office Building Project;
(VIII) Replacing and/or adding improvements mandated by
any governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(IX) Replacements of equipment or improvements that
have a useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(E) Operating Expenses shall not include the costs of
replacements of equipment or improvements that have a useful life for Federal
income tax purposes in excess of five (5) years unless it is of the type
described in paragraph 4.2(d)(viii), in which case their cost shall be included
as above provided.
(F) Operating Expenses shall not include any expenses paid
by any lessee directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or by insurance proceeds.
(G) Lessee's Share of Operating Expense Increase shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time in advance of Lessee's
Share of the Operating Expense Increase for any Comparison Year, and the same
shall be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share
of Operating Expense increase as aforesaid, Lessor shall deliver to Lessee
within sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
Increase incurred during such year. If Lessee's payments under this paragraph
4.2(g) during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison
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Year for which Lessee is responsible as to Operating Expense Increases,
notwithstanding that the Lease term may have terminated before the end of such
Comparison Year.
4.3 RENT INCREASE. See Paragraph 58 of Addendum.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease
Provisions as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Lease, Lessor may use, apply or retain all or any portion of said deposit
for the payment of any rent or other charge in default for the payment of
any other sum to which Lessor may become obligated by reason of Lessee's
default, or to compensate Lessor for any loss or damage which Lessor may
suffer thereby. If Lessor so uses or applies all or any portion of said
deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to
the full amount then required of Lessee. Lessor shall not be required to
keep said security deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much
thereof as has not heretofore been applied by Lessor, shall be returned,
without payment of interest or other increment for its use, to Lessee (or,
at Lessor's option, to the last assignee, if any, of Lessee's interest
hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(A) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expanse, rectify any
such violation.
(B) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the use by Lessee of the Premises. Lessee shall
conduct its business in a lawful manner and shall not use or permit the use of
the Premises or the Common Areas in any manner
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that will tend to create waste or a nuisance or shall tend to disturb other
occupants of the Office Building Project.
6.3 CONDITION OF PREMISES.
(A) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation.
(B) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to
keep the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(A) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
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painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(B) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings
and equipment. Except as otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(A) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such improvements, to insure
Lessor against any liability for mechanic's and materialmen's liens and to
insure completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, or use
a contractor not expressly approved by Lessor, Lessor may, at any time during
the term of this Lease, require that Lessee remove any part or all of the same.
(B) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(C) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which
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claims are or may be secured by any mechanic's or materialmen's lien against the
Premises, the Building or the Office Building Project, or any interest therein.
(D) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(E) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(F) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising
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out of the use, occupancy or maintenance of the Premises. Compliance with the
above requirement shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or
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damage arising out of or incident to the perils covered by property insurance
carried by such party, whether due to the negligence of Lessor or Lessee or
their agents, employees, contractors and/or invitees. if necessary all property
insurance policies required under this Lease shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
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9.1 DEFINITIONS.
(A) Premises Damage" shall mean if the Premises are damaged or destroyed
to any extent.
(B) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(C) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Office Building.
(D) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(E) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(F) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact than an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(G) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(A) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(B) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or
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(ii) give written notice to Lessee within thirty (30) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease as of the date of the occurrence of such damage, in which event this Lease
shall terminate as of the date of the occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which fails into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 DAMAGE NEAR END OF TERM.
(A) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(B) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(A) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
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operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(B) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(C) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or
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other income therefrom, and as against Lessor's business of leasing the Office
Building Project. The term "real property tax" shall also include any tax, fee,
levy, assessment or charge (i) in substitution of, partially or totally, any
tax, fee, levy, assessment or charge hereinabove included within the definition
of "real property tax", or (ii) the nature of which was hereinbefore included
within the definition of "real property tax", or (iii) which is imposed for a
service or right not charged prior to June 1, 1978, or, if previously charged,
has been increased since June 1, 1978, or (iv) which is imposed as a result of a
change in ownership, as defined by applicable local statutes for property tax
purposes, of the Office Building Project or which is added to a tax or charge
hereinbefore included within the definition of real property tax by reason of
such change of ownership, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(A) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(B) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services especially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times
shall be subject to advance request and reimbursement by Lessee to Lessor of the
cost thereof.
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11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading,
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1."Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS END CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(A) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
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(B) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(C) Neither a delay in the approval or disapproval of such assignment or
subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(D) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(E) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(F) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(G) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(H) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(A) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a sublessee
be deemed
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liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(B) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing,
(C) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(D) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(E) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within three (3)
days after service of said notice of default upon such sublessee, and the
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
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assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(A) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(B) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(C) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(D) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(E) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 US.C. (S)101 or any successor statute thereto (unless, in the case
of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
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(F) The discovery by Lessor that any financial statement given to Lessor
by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(A) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(B) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(C) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without
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any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge
equal to 6% of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will incur
by reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's default with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Lessee and no reduction of rent shall occur with respect thereto or by
reason thereof. Lessor shall have the option in its sole discretion to
terminate this Lease as of the taking of possession by the condemning authority,
by giving written notice to Lessee of such election within thirty (30) days
after receipt of notice of a taking by condemnation of any part of the Premises
or the Office Building Project. Any award for the taking of all or any part of
the Premises or the Office Building Project under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade fixtures, removable
personal property and unamortized tenant improvements that have been paid for by
Lessee. For that purpose the cost of such improvements shall be amortized over
the original term of this Lease excluding any options. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. BROKER'S FEE.
(A) The brokers involved in this transaction are South Park Group, Inc.
----------------------
as "listing broker" and Bradbury and Company Realtors as "cooperating broker,"
-----------------------------
licensed real estate broker(s). A "cooperating broker" is defined as any broker
other than the listing broker entitled to a share of any commission arising
under this Lease. Upon execution of this Lease by both parties, Lessor shall pay
to said brokers jointly, or in such separate shares as they may
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mutually designate in writing, a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $as per separate
----------------
agreement for brokerage services rendered by said broker(s) to Lessor in this
- ---------
transaction.
(B) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(C) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(D) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. ESTOPPEL CERTIFICATE.
(A) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that
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there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Office Building Project or of the business of Lessee.
(B) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(C) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of
such transfer of all liability as respects Lessor's obligations thereafter
to be performed, provided that any funds in the hands of Lessor or the then
grantor at the time of such transfer, in which Lessee has an interest,
shall be delivered to the grantee. The obligations contained in this Lease
to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of
Operating Expense Increase and any other expenses payable by Lessee
hereunder shall be deemed to be rent.
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22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective. This Lease may be modified in writing only,
signed by the parties in interest at the time of the modification. Except
as otherwise stated in this Lease, Lessee hereby acknowledges that neither
the real estate broker listed in paragraph 15 hereof nor any cooperating
broker on this transaction nor the Lessor or any employee or agents of any
of said persons has made any oral or written warranties or representations
to Lessee relative to the condition or use by Lessee of the Premises or the
Office Building Project and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to
the signature of the respective parties, as the case may be. Mailed notices
shall be deemed given upon actual receipt at the address required, or
forty-eight hours following deposit in the mail, postage prepaid, whichever
first occurs. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice
purposes. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by
notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee
of the same or any other provision. Lessor's consent to, or approval of,
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of
rent hereunder by Lessor shall not be a waiver of any preceding breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Lessee, except
that the rent payable shall be two hundred percent (200%) of the rent
payable immediately preceding the termination date of this Lease, and all
Options. if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity
28. COVENANTS END CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the
provisions of paragraph 17, this Lease shall bind the parties, their
personal representatives, successors and assigns. This Lease shall be
governed by the laws of the State where the Office Building Project is
located and any litigation concerning this Lease between the parties hereto
shall be initiated in the county in which the Office Building Project is
located.
30. SUBORDINATION.
(A) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination, this
Lease shall remain in full force and effect and Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground lessor shall elect to have this
Lease and any Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options are dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(B) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
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31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
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36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS. See Paragraph 62 of Addendum.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(A) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1 (d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the
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period of time commencing on the day after a monetary obligation to Lessor is
due from Lessee and unpaid (without any necessity for notice thereof to Lessee)
and continuing until the obligation is paid, or (iii) in the event that Lessor
has given to Lessee three or more notices of default under paragraph 13.1(c), or
paragraph 13.1(d), whether or not the defaults are cured, during the 12 month
period of time immediately prior to the time that Lessee attempts to exercise
the subject Option, (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants or conditions of this Lease.
(B) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(C) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1 (b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. SECURITY MEASURES-LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(A) To change the name, address or title of the Office
Building Project or building in which the Premises are located upon not less
than 90 days prior written notice;
(B) To, at Lessee's expense, provide and install Building
standard graphics on the door of the Premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
(C) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
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(D) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
40.3 LESSEE SHALL NOT:
(A) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;
(B) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect his Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
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46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute
a part of this Lease:
Addendum to Standard Office Lease
Exhibit A- Standard Office Lease Floor Plan
Exhibit B-Rules & Regulations for Standard Office Lease
Exhibit C-Work Letter to Standard Office Lease
Exhibit D-Guarantee of Lease
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Daishin U.S.A. Co., Ltd. 800 U.S. Search Inc.
- ------------------------ --------------------
By: /s/ Haruhiko Machida By: /s/ Robert L. Rich
------------------------- -----------------------------
Haruhiko Machida Robert L. Rich
Its:Vice President Its:CEO
-------------- ---
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By:____________________________ By: /s/ Keith N. Davis
Its:___________________________ -----------------------------
Keith N. Davis
Its:Shareholder
-----------
Executed at Beverly Hills
------------- Executed at Beverly Hills
on_____________________________ -------------
On January 30, 1996
Address 9107 Wilshire Blvd, ----------------
-------------------- Address 9107 Wilshire Blvd,
Beverly Hills, CA 90210 --------------------
- ----------------------- Beverly Hills, CA 90210
-----------------------
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STANDARD OFFICE LEASE
FLOOR PLAN
1
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RULES AND REGULATIONS FOR STANDARD OFFICE LEASE
STANDARD OFFICE LEASE
Dated:______________________________
By and Between__________________________________________________________________
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.
4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity
11. Lessee shall not employ any service or contractor for services or work to
be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 6:30 P.M. and
7:00 A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall be
responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
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15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon the
Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles".
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
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7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby.
WORK LETTER TO STANDARD OFFICE LEASE
Dated :_________________________________________________________________________
By and between: Daishin U.S.A. Co., Ltd. (Lessor) and 800 U.S. Search Inc.
---------------------------------------------------------------
(Lessee)
- --------
The Premises shall be constructed in accordance with Lessor's Standard
Improvements, as follows:
1. Partitions
Lessor shall construct five (5) new building standard partition walls
approximate location of which as shown on "Exhibit A".
Lessor shall remove four (4) existing partition walls, approximate location
of which as shown on "Exhibit A". In addition, Lessor shall install one (1)
partition with glass insert (to be mutually agreed upon by Lessor and Lessee,
approximate location of which as shown on "Exhibit A").
2. Wall Surfaces
Lessor shall paint all partitions in building standard paint and color.
3.
4. Carpeting
Lessor shall patch carpet where needed (due to removal of existing
partition walls) with building standard carpet. Lessor does not guarantee that
said patch will be cosmetically identical in color. In addition, Lessor shall
install new building standard carpet as shown on "Exhibit A".
5. Doors
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Lessor shall install five (5) new building standard doors, approximate
location of which as shown on "Exhibit A". In addition, Lessor shall install
one (1) door type to be mutually agreed upon by Lessor and Lessee, approximate
location of which as shown on "Exhibit A".
6. Electrical and Telephone Outlets
All electrical and telephone outlets shall remain "as is". Notwithstanding
the above, Lessor shall install new electrical outlets and telephone "stub-out"
boxes in all new partition to be built by Lessor as stated in 1 above.
7. Ceiling
Shall remain strictly "as is". Lessor shall provide no ceiling
alterations.
8. Lighting
Shall remain strictly "as is". Lessor shall provide no lighting
alterations.
9. Heating and Air Conditioning Ducts
Shall remain strictly "as is". Lessor shall provide no heating and air
conditioning duct alterations.
10. Sound Proofing
Shall remain strictly "as is". Lessor shall provide no sound proofing
alterations.
11. Plumbing
Shall remain strictly "as is". Lessor shall provide no plumbing
alterations.
12. Entrance Doors
13. Completion of Improvements
Lessor shall construct and complete improvements to the Premises in
accordance with the plans and specifications prepared by as shown on "Exhibit A"
of the Lease, dated January 24, 1996, dated consisting of sheets (the
"Improvements")
14.
15. CONSTRUCTION
If Lessor's cost of constructing the Improvements to the Premises exceeds the
cost of Lessor's Standard Improvements, Lessee shall pay to Lessor in cash
before the commencement of such construction a sum equal to such excess.
If the final plans and specifications are approved by Lessor and Lessee, and
Lessee pays Lessor for such excess, then Lessor shall, at its sole cost and
expense, construct the Improvements in
2.
<PAGE>
accordance with said approved final plans and specifications and all applicable
rules, regulations, laws or ordinances.
16. COMPLETION.
16.1 Lessor shall obtain a building permit to construct the Improvements
as soon as possible.
16.2 Lessor shall complete the construction of the Improvements as soon
as reasonably possible after the obtaining of necessary building permits.
16.3 The term "Completion", as used in this Work Letter, is hereby
defined to mean the date the building department of the municipality having
jurisdiction of the Premises shall have made a final inspection of the
Improvements and authorized a final release of restriction on the use of public
utilities in connection therewith and the same are in a broom-clean condition.
16.4 Lessor shall use its best efforts to achieve Completion of the
Improvements on or before the Commencement Date set forth in paragraph 1.5 of
the Basic Lease Provisions or within one hundred eighty (180) days after Lessor
obtains the building permit from the applicable building department, whichever
is later.
16.5 In the event that the Improvements or any portion thereof have not
reached Completion by the Commencement Date, this Lease shall not be Invalid,
but rather Lessor shall complete the same as soon thereafter as is possible and
Lessor shall not be liable to Lessee for damages in any respect whatsoever.
16.6 If Lessor shall be delayed at any time in the progress of the
construction of the Improvements or any portion thereof by extra work, changes
in construction ordered by Lessee, or by strikes, lockouts, fire, delay in
transportation, unavoidable casualties, rain or weather conditions, governmental
procedures or delay, or by any other cause beyond Lessor's control, then the
Commencement Date established in paragraph 1.5 of the Lease shall be extended by
the period of such delay.
17. TERM
Upon Completion of the Improvements as defined in paragraph 16.3, above, Lessor
and Lessee shall execute an amendment to the Lease setting forth the date of
Tender of Possession as defined in paragraph 3.2.1 of the Lease or of actual
taking of possession whichever first occurs, as the Commencement Date of this
Lease.
18. WORK DONE BY LESSEE.
Any work done by Lessee shall be done only with Lessor's prior written consent
and in conformity with a valid building permit and all applicable rules,
regulations, laws and ordinances, and be done in a good and workmanlike manner
with good and sufficient materials. All work shall be done only with union labor
and only by contractors approved by Lessor, it being understood that all
plumbing, mechanical, electrical wiring and ceiling work are to be done only by
contractors designated by Lessor.
3.
<PAGE>
19. TAKING OF POSSESSION OF PREMISES
Lessor shall notify Lessee of the Estimated Completion Date at least ten (10)
days before said date. Lessee shall thereafter have the right to enter the
Premises to commence construction of any Improvements Lessee is to construct and
to equip and fixturize the Premises, as long as such entry does not interfere
with Lessor's work. Lessee shall take possession of the Premises upon the tender
thereof as provided in paragraph 3.2.1 of the Lease to which this Work Letter is
attached. Any entry by Lessee of the Premises under this paragraph shall be
under all of the terms and provisions of the Lease to which this Work Letter is
attached.
20. ACCEPTANCE OF PREMISES
Lessee shall notify Lessor in writing of any items that Lessee deems incomplete
or incorrect in order for the Premises to be acceptable to Lessee within ten
(10) days following Tender of Possession as set forth in paragraph 3.2.1 of the
Lease to which this Work Letter is attached. Lessee shall be deemed to have
accepted the Premises and approved construction if Lessee does not deliver such
a list to Lessor within said number of days.
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form; AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017, (213) 687-8777
4.
<PAGE>
WHEREAS, Daishin U.S.A. Co., Ltd. hereinafter referred to as "Lessor" and 800
-----------------------
U.S. Search Inc., hereinafter referred to as "Lessee" are about to execute a
- -----------------
document entitled "Lease" dated January 24, 1996 concerning the premises
----------------
commonly known as 9107 Wilshire Boulevard Beverly Hills, CA 90210 Suite 700
---------------------------------------------------------
wherein Lessor will lease the premises to Lessee; and
WHEREAS, Robert L. Rich and Keith N. Davis (jointly and severally)
---------------------------------------------------------
hereinafter referred to as "Guarantors" have a financial interest in Lessee;
and
WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said Lease,
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms, conditions and covenants of said Lease to be kept and
performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors. It being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach of default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person at entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
5.
<PAGE>
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease or any
part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of trust or assignment of any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Lessee, assignee or
sublessee of such Lease of any part thereof, whether by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantors hereunder
to enforce the obligation of Guarantors hereunder, the unsuccessful party in
such action shall pay to the prevailing party therein a reasonable attorney's
fee which shall be fixed by the court.
If this Form has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents of employees as to the legal sufficiency, legal
effect, or fax consequences of this Form or the transaction relating thereto.
Executed at_______________________ ___________________________________
On January 30, 1996 Robert L. Rich
-------------------------------
Address 9107 Wilshire Blvd. ___________________________________
--------------------------
Beverly Hills, CA 90210 Keith N. Davis
- ----------------------------------
"Guarantors"
6.
<PAGE>
STANDARD SUBLEASE
American Industrial Real Estate Association
1. PARTIES. This Sublease, dated, for reference purposes only, August 8,
1997, is made by and between 800 U.S. Search, Inc. (herein called "Sublessor")
and Crocker Capital, LLC, a Delaware limited liability company (herein called
"Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Los Angeles, State of California, commonly known as 9107 Wilshire Boulevard,
Suite 700, Beverly Hills and described as 3,065 rental square feet; a portion of
Suite 700 as set forth in Exhibit 2 and attached hereto. Lobby and Conference
Areas are for the use of both Sublessor and Sublessee.
Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for three (3) years and six
(6) months commencing on August 15, 1997 and ending on February 14,
2001 unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to
Sublessee on said date, Sublessor shall not be subject to any
liability therefore nor shall such failure affect the validity of this
Lease or the obligations of Sublessee hereunder or extend the term
hereof, but in such case Sublessee shall not be obligated to pay rent
until possession of the Premises is tendered to Sublessee; provided,
however, that if Sublessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Sublessee
may, at Sublessee's option, by notice in writing of Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the
parties shall be discharged from all obligations thereunder if
Sublessee occupies the Premises prior to said commencement date, such
occupancy shall be subject to all provisions hereof, such occupancy
shall not advance the termination date and Sublessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $ (See additional provisions), in advance, on the 15th day
of each month of the term hereof. Sublessee shall pay Sublessor upon the
execution hereof $17,685.05 as rent for the first two (2) months rent and a
security deposit.
Rent for any period during the term hereof which is for less than one month
shall be a prorata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Sublessor at the address stated herein or
to such other persons or at such other places as Sublessor may designate in
writing.
1.
<PAGE>
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $5,425.05 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to sublessee (or at sublessor's option to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust
relationship is created herein between Sublessor and Sublessee with respect to
said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general office
and/or the same use as is approved under the Master Lease and for no
other purpose.
6.2 COMPLIANCE WITH LAW.
(A) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee
will use the Premises, does not violate any applicable building
code regulation or ordinance at the time that this Sublease is
executed. In the event that it is determined that this warranty
has been violated, then it shall be the obligation of the
Sublessor after written notice from Sublessee to promptly at the
Sublessor's sole cost and expense, rectify any such violation. In
the event that Sublessee does note give to Sublessor written
notice of the violation of this warranty within 1 year from the
commencement of the term of this sublease, it shall be
conclusively deemed that such violation did not exist and the
correction of the same shall be the obligation of the Sublessee.
(B) EXCEPT AS PROVIDED IN PARAGRAPH 6.2(A), SUBLESSEE SHALL, AT
SUBLESSEE'S EXPENSE, COMPLY PROMPTLY WITH ALL APPLICABLE
STATUTES, ORDINANCES, RULES, REGULATIONS, ORDERS, RESTRICTIONS OF
RECORD, AND REQUIREMENTS IN EFFECT DURING THE TERM OR ANY PART OF
THE TERM HEREOF REGULATING THE USE BY SUBLESSEE OF THE PREMISES.
SUBLESSEE SHALL NOT USE OR PERMIT THE USE OF THE PREMISES IN ANY
MANNER THAT WILL TEND TO CREATE WASTE OR A NUISANCE OR, IF THERE
SHALL BE MORE THAN ONE TENANT OF THE BUILDING CONTAINING THE
PREMISES, WHICH SHALL TEND TO DISTURB SUCH OTHER TENANTS.
2.
<PAGE>
6.3 CONDITION OF PREMISES. EXCEPT AS PROVIDED IN PARAGRAPH 6.2(A),
SUBLESSEE HEREBY ACCEPTS THE PREMISES IN THEIR CONDITION EXISTING AS
OF THE DATE OF THE EXECUTION HEREOF, SUBJECT TO ALL APPLICABLE ZONING,
MUNICIPAL, COUNTY AND STATE LAWS, ORDINANCES, AND REGULATIONS
GOVERNING AND REGULATING THE USE OF THE PREMISES, AND ACCEPTS THIS
SUBLEASE SUBJECT THERETO AND TO ALL MATTERS DISCLOSED THEREBY AND BY
ANY EXHIBITS ATTACHED HERETO. SUBLESSEE ACKNOWLEDGES THAT NEITHER
SUBLESSOR NOR SUBLESSOR'S AGENT HAVE MADE ANY REPRESENTATION OR
WARRANTY AS TO THE SUITABILITY OF THE PREMISES FOR THE CONDUCT OF
SUBLESSEE'S BUSINESS.
7. MASTER LEASE.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is
attached hereto marked Exhibit 1, dated January 24, 1996 wherein
Daishin U.S.A. Co., Ltd. is the lessor, hereinafter referred to as the
"Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and
conditions of the Master Lease except for those provisions of the
Master Lease which are directly contradicted by this Sublease in which
event the terms of this sublease document shall control over the
Master Lease. Therefore, for the purposes of this Sublease, wherever
in the Master Lease the work "Lessor" is used it shall be deemed to
mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of the Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this
Sublease, Sublessee does hereby expressly assume and ______ perform
_______________ of Sublessor and Master Lessor, each and every
obligation of Sublessor under the Master
Lease________________________________.
7.5 The obligations that sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations".
The obligations that Sublessee has not assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessor's Remaining
Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including
reasonable attorneys fees, arising out of Sublessee's failure to
comply with or perform Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or
perform Sublessor's Remaining
3.
<PAGE>
Obligations and to hold Sublessee free and harmless of and from all
liability, judgments, costs, damages, claims or demands arising out of
sublessor's failure to comply with or perform Sublessor's Remaining
Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party
to the Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income
arising therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents
accruing under this Sublease. However, if Sublessor shall default in
the performance of its obligations to Master Lessor then Master Lessor
may, at its option, receive and collect, directly from Sublessee, all
rent owing and to be owed under this Sublease. Master Lessor shall
not, by reason of this assignment of the Sublease nor by reason for
the collection of the rents from the Sublessee, be deemed liable to
sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a
default exists in the performance of Sublessor's obligations under the
Master Lease, to pay to Master Lessor the rents due and to become due
under the Sublease. Sublessor agrees that Sublessee shall have the
right to rely upon any such statement and request from Master Lessor
and that Sublessee shall pay such rents to Master Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Sublessor to the
contrary and Sublessor shall have no right or claim against Sublessee
for any such rents so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without the
consent to Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then this
Sublease shall not be effective unless, within 10 days of the date
hereof, Master Lessor signs this Sublease thereby giving its consent
to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease nor the
Master Lessor's consent, shall not be effective unless, within 10 days
of the date hereof, said
4.
<PAGE>
guarantors sign this Sublease thereby giving guarantors consent to
this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(A) Such consent will not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the rent and
perform and comply with all of the obligations of Sublessor to be
performed under the Master Lease.
(B) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver
by Master Lessor of any provisions of the Master Lease.
(C) The consent to this Sublease shall not constitute a consent to
any subsequent subletting or assignment.
(D) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any
guarantors or any one else liable under the Master Lease of this
Sublease without first exhausting Master Lessor's remedies
against any other person or entity liable thereon to Master
Lessor.
(E) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any
amendments or modifications thereto without notifying Sublessor
nor any one else liable under the Master Lease and without
obtaining their consent and such action shall not relieve such
persons from liability.
(F) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and
without being obligated to do so, may require Sublessee to attorn
to Master Lessor in which event Master Lessor shall undertake the
obligations of Sublessor under this Sublease from the time of the
exercise of said option to termination of this Sublease but
Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be
liable for any other defaults of the Sublessor under the
Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms
of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of
obligations to be performed by Sublessor and that the Master Lease is
in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor at Master
Lessor's sole option and discretion reserves the right to terminate
this Sublease or to continue said Sublease in full force and effect.
In the event Master Lessor elects to terminate
5.
<PAGE>
Sublease, Sublessee hereby agrees and acknowledges that Master Lessor
shall not be liable to Sublessee for any obligations to be performed
by Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to First
Property Realty Corporation a licensed real estate broker, (herein
called "Broker"), a fee as set forth in a separate agreement between
Sublessor and Broker, or in the event there is no separate agreement
between Sublessor and Broker, the sum of $XXXX for brokerage services
-----
rendered by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this
Sublease, to renew this Sublease, to purchase the Premises, or to
lease or purchase adjacent property which Sublessor may own or in
which Sublessor has an interest, or if Broker is the procuring cause
of any lease, sublease, or sale pertaining to the Premises or any
adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease. Notwithstanding
the foregoing, Sublessor's obligation under this Paragraph 10.2 is
limited to a transaction in which Sublessor is acting as a sublessor,
lessor or seller.
10.3 Any fee due from Sublessor hereunder shall be due and payable upon the
exercise of any option to extend or renew, as to any extension or
renewal, upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or
at the close of escrow, as to the exercise of any option to purchase
or other sale transaction.
10.4 Any transferee of Sublessor's interest in this Sublease, by accepting
an assignment thereof, shall be deemed to have assumed the respective
obligations of Sublessor under this Paragraph 10. Broker shall be
deemed to be a third party beneficiary of this Paragraph 10.
11. ATTORNEYS FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall ____ to the benefit of the Broker named herein
who seeks to enforce a right hereunder.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there
are additional provisions place the same here.]
Rent: The schedule of monthly rents shall be as follows:
MONTHS MONTHLY RENT
6.
<PAGE>
1 - 3 $6,103.00 ($2.00)
4 - 12 $5,210.50 ($1.70)
13 - 42 $5,425.05 ($1.77)
Right to Terminate: Sublessee shall have a one time right to terminate this
sublease agreement after the third (3rd) month of the
sublease term. Sublessee must notify Sublessor in writing
at least twenty-one (21) days prior to the end of month
three (3) if it elects to exercise this right to
terminate. If Sublessee exercises this option, and so
long as Sublessee is not in default of its lease,
Sublessor shall refund the security deposition to
Sublessee according to the provisions set forth in
Article 5 of this Sublease Agreement.
HAZARDOUS MATERIALS:
Sublessee acknowledges and agrees that the Sublessor and/or its agents have
disclosed the existence of asbestos, within the Premises and the Project,
that Sublessee shall not disturb the same and that Sublessor and Master
Lessor shall not be obligated to remove the asbestos from or otherwise
remedy the Project at any time, unless required by applicable law. In the
event asbestos removal/abatement work is required by applicable law, or is
deemed to be desirable by the Master Lessor, Master Lessor shall be
entitled to require the Sublessee and Sublessor to temporarily relocate to
another space within the Building Project. Provided that Sublessor at
Sublessor's sole cost and expense shall relocate sublessee to a similar
office space in the Project, and pay such relocation costs limited to
telephones, computers, stationery, moving to Lessee's choice of office
furniture, books, equipment, files and other fixtures within the Premises.
Sublessee acknowledges that the Sublessor and Master Lessor have not
inspected the building or the Premises for the presence of Hazardous
Materials other than asbestos. Master Lessor represents it has no actual
knowledge that any Hazardous Material other than asbestos is or is not
present in the building or the Premises, and that the provisions of the
sublease concerning asbestos are not to be construed as implied
representations or warranties by the Master Lessor that no Hazardous
Materials other than asbestos are present in the building or the Premises.
<PAGE>
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION RELATING
THERETO.
Executed at Beverly Hills, CA 800 U.S. Search, Inc.
-------------------------------- ---------------------------------
on August 21, 1997 By: /s/ Robert L. Rich
---------------------------------------- ------------------------------
address 9107 Wilshire Boulevard, Suite 700, By:______________________________
-----------------------------------
Beverly Hills, CA 90210
- -------------------------------------------
"SUBLESSOR" (CORPORATE SEAL)
Executed at________________________________ Crocker Capital, LLC
---------------------------------
On August 21, 1997 By:______________________________
-----------------------------------------
Address 1201 Dove Street, Suite 600 By:______________________________
-----------------------------------
Newport Beach, CA
- -------------------------------------------
"SUBLESSEE" (CORPORATE SEAL)
Executed at 9107 Wilshire #500
------------------------------- _________________________________
on August 25, 1997 By: /s/ Haruhiko Machida
---------------------------------------- ------------------------------
address Beverly Hills, CA 90210 By:______________________________
------------------------------------
___________________________________________
"MASTER LESSOR" (CORPORATE SEAL)
Executed at________________________________ _________________________________
on August 21, 1997 /s/ Robert L. Rich
----------------------------------------- ---------------------------------
address 9107 Wilshire Blvd. #700
----------------------------------- _________________________________
Beverly Hills, CA 90210
- -------------------------------------------
"GUARANTORS"
8.
<PAGE>
EXHIBIT 10.4.1
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
Dated January 24, 1996
By and Between (Lessor) Daishin U.S.A. Co., Ltd.
(Lessee) 800 U.S. Search, Inc.
Property Address: 9107 Wilshire Blvd.
Beverly Hills, CA 90210 Suite 700
Paragraph 62
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease
for 1 additional 36 month period(s) commencing when the prior term expires upon
each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which
is prior to the date that the option period would commence (if exercised) by at
least six and not more than seven months, a written notice of the exercise of
the option(s) to extend this Lease for said additional term(s), time being of
essence if said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively.
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
The greater of "I" or "II" as stated below.
(Check Method(s) to be Used and Fill in Appropriately)
[X] I. Cost of Living Adjustment(s) (COL)
(a) On (Fill in COL Adjustment Date(s): February 15, 2001 the monthly
rent payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be
adjusted by the change, if any, from the Base Month specified below, in the
Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of
Labor for (select one): or [X] CPI U (All Urban Consumers),
1.
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for (Fill In Urban Area): ____________________________________________. All
Items (1982-1984 = 100), herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month 2 (two) months prior to the
month(s) specified in paragraph A1(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is two (2) months prior to (select one): [X] the first month of the
term of this Lease as set forth in paragraph 1.3 ("Base Month") or [_]. The sum
so calculated shall constitute the new monthly rent hereunder, but in no event,
shall any such new monthly rent be less than the rent payable for the month
immediately preceding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Lessor and Lessee cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
[X] II. Market Rental Value Adjustment(s) (MRV)
(a) On (Fill in MRV Adjustment Date(s): February 15, 2001 the monthly rent
payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be
adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
i) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next 30 days.
Any associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and pay
the appraiser or broker of their choice to establish a MRV within the next 30
days if for any reason, either one of the appraisals is not completed within the
next 30 days, as stipulated, then the appraisal that is completed at that time
shall automatically become the new MRV. If both appraisals are completed and the
two appraisers/brokers cannot agree on a reasonable average MRV then they shall
immediately select a third mutually acceptable appraiser/broker to establish a
third MRV within the next 30 days. The average of the two appraisals closest in
value shall then become the new MRV. The costs of the third appraisal will be
split equally between the parties.
2) In any event, the new MRV shall not be less than the rent payable
for the month immediately preceding the date for rent adjustment.
2.
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(b) Upon the establishment of each New Market Rental Value as described in
paragraph All:
1) the monthly rental sum so calculated for each term as specified
in paragraph All(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(a) above and
2) the first month of each Market Rental Value term as specified in
paragraph AII(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
AI(b).
B. NOTICE: Unless specified otherwise herein, notice of any escalations other
than Fixed Rental Adjustments shall be made as specified in paragraph 23 of the
attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease shall
be paid a Brokerage Fee for each adjustment specified above in accordance with
paragraph 15 of the attached Lease.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. Lessor shall not be required to keep said
security deposit separate from its general accounts. If Lessee performs all of
Lessee's obligations hereunder, said deposit, or so much thereof as has not
heretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) at the expiration of
the term hereof, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
Security Deposit.
6. USE.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or
3.
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restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term Commencement Date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expanse, rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the use by Lessee of the Premises. Lessee shall conduct its
business in a lawful manner and shall not use or permit the use of the Premises
or the Common Areas in any manner that will tend to create waste or a nuisance
or shall tend to disturb other occupants of the Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings. or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any
4.
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part thereof. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for mechanic's
and materialmen's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by Lessor,
Lessor may, at any time during the term of this Lease, require that Lessee
remove any part or all of the same.
5.
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(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as
6.
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plumbing, electrical systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the
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commencement of the term of this Lease if the increase is specified by Lessor's
insurance carrier as being caused by the nature of Lessee's occupancy or any act
or omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. if necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new
8.
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construction or the repair, alteration or improvement of any part of the Office
Building Project, or of the equipment, fixtures or appurtenances applicable
thereto, and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible, Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or user of
the Office Building Project, nor from the failure of Lessor to enforce the
provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Office Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact than an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor
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shall, as soon as reasonably possible and to the extent the required materials
and labor are readily available through usual commercial channels, at Lessor's
expense, repair such damage (but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to its condition existing at the
time of the damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which fails into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and
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cancel this Lease as of the expiration of said twenty (20) day period by giving
written notice to Lessee of Lessor's election to do so within ten (10) days
after the expiration of said twenty (20) day period, notwithstanding any term or
provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination-Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor
11.
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at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax:' or (ii) the nature of which was hereinbefore included within the
definition of "real property tax"; or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
12.
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11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services especially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1."Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
thereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations
13.
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of Lessee under this Lease and (b) Lessor shall be given written notice of such
assignment and assumption. Any such assignment shall not, in any way, affect or
limit the liability of Lessee under the terms of this Lease even if after such
assignment or subletting the terms of this Lease are materially changed or
altered without the consent of Lessee, the consent of whom shall not be
necessary.
12.3 Terms end Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
14.
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12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee. be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
15.
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12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C.
16.
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(S)101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days; (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days. In the event that any
provision of this paragraph 13.1(e) is contrary to any applicable law, such
provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
17.
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13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Lessee and no reduction of rent shall occur with respect thereto or by
reason thereof. Lessor shall have the option in its sole discretion to terminate
this Lease as of the taking of possession by the condemning authority, by giving
written notice to Lessee of such election within thirty (30) days after receipt
of notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
18.
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15. Broker's Fee.
(a) The brokers involved in this transaction are South Park Group, Inc. as
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"listing broker" and Bradbury and Company Realtors as "cooperating broker,"
-----------------------------
licensed real estate broker(s). A "cooperating broker" is defined as any broker
other than the listing broker entitled to a share of any commission arising
under this Lease. Upon execution of this Lease by both parties, Lessor shall pay
to said brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate agreement between Lessor
and said broker(s), or in the event there is no separate agreement between
Lessor and said broker(s), the sum of $ as per separate agreement, for brokerage
---------------------------
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
19.
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(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. Interest On Past-Due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
20.
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21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23 Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under
21.
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the terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby,
at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, this Lease shall remain in full
force and effect and Lessee's right to quiet possession of the Premises shall
not be disturbed if Lessee is not in default and so long as Lessee shall pay the
rent and observe and perform all of the provisions of this Lease, unless this
Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee
or ground lessor shall elect to have this Lease and any Options granted hereby
prior to the lien of its mortgage, deed of trust or ground lease, and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such mortgage, deed of trust or ground lease, whether this Lease or
such Options are dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
22.
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judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
23.
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35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. Options. See Paragraph 62 of Addendum.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
24.
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(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(c), or paragraph
13.1(d), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. Security Measures-Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
25.
<PAGE>
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suite for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
26.
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44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications
to this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute
a part of this Lease:
Addendum to Standard Office Lease
Exhibit A - Standard Office Lease Floor Plan
Exhibit B - Rules & Regulations for Standard Office Lease
Exhibit C - Work Letter to Standard Office Lease
Exhibit D - Guarantee of Lease
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF
27.
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THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Daishin U.S.A. Co., Ltd. 800 U.S. Search, Inc.
By: /s/ Haruhiko Machida By: /s/ Robert L. Rich
_______________________________ _______________________________
Haruhiko Machida Robert L. Rich
Its: Vice President Its:
By: By: /s/ Keith N. Davis
_______________________________ _______________________________
Keith N. Davis
Its: Its:
Executed at Beverly Hills Executed at
on on
Address: 9107 Wilshire Blvd., Address
Beverly Hills, CA 90210
28.
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EXHIBIT 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is made and
entered into as of November 21, 1997, as amended and restated as of September
14, 1998, by and between 800-U.S. SEARCH, a California corporation (the
"Company"), and NICHOLAS MATZORKIS ("Employee").
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the Company and Employee hereby agree
as follows:
1. POSITIONS AND DUTIES.
(A) The Company hereby employs Employee with the title of Founder of
the Company during the term of this Agreement and with such other powers and
such other titles as may be prescribed by the Board of Directors of the Company
(the "Board of Directors"). Employee shall, during the term of this Agreement,
perform such additional or different duties, and accept the election or
appointment to such other offices or positions, including but not limited to the
position of Chief of Technology, as may mutually be agreeable to Employee and
the Board of Directors. Employee shall report to the President of the Company
and as otherwise designated by the Board of Directors.
(B) Employee shall devote his full working time to the promotion of
the Company's business and welfare, and use his reasonable best efforts to
promote the Company's products, services, business, operations and/or
activities. Employee shall perform such duties and responsibilities incidental
to his employment as may from time to time be requested by the Board of
Directors, and shall faithfully observe the Company's policies and procedures
consistent with the provisions hereof.
2. SALARY. During the term of his employment hereunder, the Company
shall pay to Employee a salary, in equal installments not less frequently than
monthly, at the following rates per year:
Year One (commencing September 14, 1998): $150,000
Year Two: $175,000
Year Three: $200,000
; provided, however, that effective upon the completion of a permanent financing
transaction involving the issuance by the Company of debt or equity securities
resulting in gross proceeds to the Company of at least $10 million (excluding
debt securities having a term of one year or less), the rates per year, or any
remaining portions thereof, shall be changed (on a prospective basis only, with
no change to any payments made prior thereto) to the following:
Year One (commencing September 14, 1998): $175,000
Year Two: $200,000
Year Three: $225,000
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3. EXPENSES. The Company will reimburse or pay Employee for all usual,
reasonable and necessary expenses paid or incurred by Employee in the
performance of his duties hereunder, consistent with the Company's expense
reimbursement policies and subject to receipt by the Company of appropriate
documentary proof of all expenditures for which reimbursement is sought, up to a
maximum of $500 per month during the first two years of the employment term, and
up to a maximum of $750 per month during the year thereafter. In addition, the
Company shall reimburse Employee for mobile telephone charges for actual usage
directly related to the Company's business, up to a maximum of the greater of
(i) $200 per month or (ii) the monthly mobile telephone charge allowance of the
Chief Executive Officer of the Company.
4. EMPLOYEE BENEFITS.
(A) During the term of his employment hereunder, Employee shall be
entitled to in and receive all other benefits of employment generally available
to other employees of the Company, including, among other things, participation
in any medical, dental and accidental benefit plans, life insurance and
vacation, if and to the extent that Employee is eligible to participate in
accordance with the provisions of any such plans or benefits. Without limiting
the foregoing, Employee shall be entitled to vacations in accordance with the
general personnel policies of the Company and to a monthly automobile allowance
equal to the greater of (i) $600 or (ii) the automobile allowance, if any,
accorded by the Company to the then current Chief Executive Officer of the
Company. Nothing herein, however, is intended or shall be construed to require
the Company to institute any plan or benefits, or to maintain or refrain from
amending or terminating any such existing plan or benefits.
(B) The Company shall pay, during the term of this Agreement if
Employee is insurable on the basis of a fully healthy person of his age and
occupation, the premiums on a $1,000,000 life insurance policy insuring the life
of Employee for the benefit of Employee's designated beneficiaries. In addition,
Employee hereby grants the Company the right to obtain the benefit of a key-man
life insurance policy on the life of Employee for the benefit of the Company and
Employee agrees to assist the Company in obtaining such policy.
5. TERM.
(A) The term of Employee's employment by the Company under this
Agreement shall commence on September 14, 1998 and shall terminate upon the
first to occur of the following events: (i) the third anniversary thereof, (ii)
the death of Employee, (iii) at the option of the Company and upon 20 days prior
written notice to Employee, in the event of the inability of Employee to perform
his duties hereunder, whether by reason of injury, illness (physical or mental)
or otherwise, for a period of two (2) consecutive months, (iv) at the option of
the Company and upon 20 days prior written notice to Employee, in the event the
Board of Directors determines to discontinue the business of the Company
substantially as currently conducted, (v) at the option of Employee in the event
of the Company's filing of a voluntary bankruptcy petition, or in the event of
the filing of an involuntary bankruptcy petition against the Company which is
not dismissed within ninety (90) days from the date of such filing, or (vi) the
discharge of Employee for cause. The Company may at any time terminate the
employment of Employee for "cause." Cause shall mean (i) fraud, embezzlement or
conviction of or the
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pleading of guilty or no contest to any felony, or to any misdemeanor involving
dishonesty, (ii) gross negligence or failure to observe or follow material
reasonable and explicit instructions or directives of the Board of Directors of
the Company, (iii) failure to perform Employee's duties hereunder, (iv) any
breach by Employee of his representations, warranties, covenants or obligations
as set forth herein or in that certain Letter Agreement, dated as of October 24,
1997, by and between Kushner-Locke and Employee, (v) the occurrence of any
matter relating to Employee of the type set forth in Item 401(f) of Regulation
S-K promulgated by the Securities and Exchange Commission, or (vi) malfeasance
or failure to act involving nonfeasance in either case materially effecting the
Company; provided, however, that if a failure to comply with items (ii) or (iii)
above is capable of being cured, for so long as Employee continues diligently to
remedy or to cure such failure to comply (but in no event longer than twenty
(20) days after the occurrence of such failure to comply), the Company shall not
be able to terminate this Agreement for cause for such failure. Upon the
termination of Employee's employment pursuant to this Section 6(a), the Company
shall have no further liability or obligation of any kind or nature whatsoever
to Employee under this Agreement, except that any salary earned by Employee to
the date of termination but not paid shall be paid by the Company to Employee or
his estate, and Employee shall be entitled to such benefits, if any, under
Sections 3, 4 and 5 hereof to which he has become entitled prior to the date of
his termination of employment under the terms of this Agreement or any plan or
program (in accordance with the express terms thereof) in which Employee was
participating on the date of such termination.
(B) If Employee's employment is terminated by the Company otherwise
than as provided in Section 6(a) hereof, then Employee shall be entitled to
receive from the Company for a period of the lesser of (i) twelve (12) months or
(ii) until the ending date of the period of employment hereunder (determined as
provided in paragraph 6(a) hereof), the salary in effect at the date of such
termination, or, at the Company's option, the present value of such payments
discounted at a ten percent (10%) interest rate. The Company's obligation to
make such salary payments shall not be reduced or mitigated by any compensation
or other income Employee may receive from any other sources following any such
termination without cause. Upon the payment of the amounts provided in this
paragraph 6(b), the Company shall have no further liability or obligation of any
kind or nature whatsoever to Employee under this Agreement, except that Employee
shall be entitled to such benefits, if any, under Sections 3, 4 and 5 hereof to
which he has become entitled prior to the date of his termination of employment
under the terms of this Agreement or any plan or program (in accordance with the
express terms thereof) in which Employee was participating on the date of such
termination.
6. COVENANT NOT TO SOLICIT OR HIRE EMPLOYEES OR CUSTOMERS. During the
term of his employment hereunder and during the one-year period following
termination of his employment hereunder, Employee shall not, directly or
indirectly, on behalf of Employee or any other person or entity, solicit or
induce any of the Company's employees (other than Susan Hanle) to terminate
their employment with the Company, hire or cause any of the then current
employees of the Company (other than Susan Hanle) to be hired by any other
person or entity, or solicit or assist in soliciting any business from any of
the then current customers, prospective customers, suppliers or service
providers of the Company with respect to any products or services currently
provided or offered by the Company to any of its customers.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
3
<PAGE>
(A) "Confidential Information" includes all information related to
the products, services, business, operations and/or activities of the Company,
including, but not limited to, all of the Company's, and its affiliates',
performance, sales, financial, pricing, cost, manufacturing, contractual and
marketing information, ideas, knowledge and data, and all processes, products,
formulae, designs, practices, techniques, trade secrets, research, know-how,
customer lists, technical requirements of customers and identity and purchasing
terms of suppliers, unless such information is in the public domain to such an
extent as to be readily available to competitors other than through a breach,
directly or indirectly, of any confidentiality obligation as to which the
Company has not or does not bring or take any action in an attempt to project
such information within one (1) year after the time an officer (other than
Matzorkis) of the Company actually is aware that such information is so
available.
(B) Employee acknowledges that the Company shall have exclusive
property rights to all of its Confidential Information and agrees to assign all
rights he might otherwise possess, acquire or claim to possess or acquire in any
Confidential Information to the Company. Except as required in the performance
of his duties hereunder, Employee shall not at any time during or after the term
of his employment, directly or indirectly, use, communicate, disclose,
disseminate, lecture upon, publish articles or otherwise put in the public
domain or exploit any Confidential Information or any other information of a
secret, proprietary, confidential or generally undisclosed nature relating to
the products, services, business, operations and/or activities of the Company.
(C) All documents, records, notebooks, notes, memoranda, computer
records and other repositories of or containing Confidential Information or any
other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Company or to its products, services,
business, operations and/or activities made or compiled by Employee at any time
or made available to Employee prior to or during the term of his employment by
the Company, including any and all copies thereof, shall be the property of the
Company, shall be held by Employee in trust solely for the benefit of the
Company, and shall be delivered to the Company by Employee on the termination of
Employee's employment or at any other time on the request of the Company.
8. RIGHT TO INJUNCTION. Employee acknowledges that any remedy at law for
a breach by him of the provisions of Sections 7 and/or 8 hereof will be
inadequate. Accordingly, in the event of the breach or threatened breach by
Employee of Sections 7 and/or 8 hereof, the Company shall be entitled to
injunctive relief in addition to any other remedy it may have.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties and supersedes all prior agreements of the parties with respect to
the subject matter hereof.
10. GOVERNING LAW AND FORUM. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the State of
California without regard to the conflict of laws principles of such state. The
parties hereto agree that all actions or proceedings arising in connection with
this Agreement shall be tried and litigated exclusively in the state and federal
courts located in the County of Los Angeles, State of California. The
aforementioned choice of venue is intended by the parties hereto to be
4
<PAGE>
mandatory and not permissive in nature, thereby precluding the possibility of
litigation between the parties hereto with respect to or arising out of this
Agreement in any jurisdiction other than that specified in this paragraph. Each
of the parties hereto hereby waives any right it may have to assert the doctrine
of forum non conveniens or similar doctrine or to object to venue with respect
to any proceeding brought in accordance with this paragraph, and stipulates that
the state and federal courts located in the County of Los Angeles, State of
California shall have in personam jurisdiction and venue over each of them for
the purpose of litigating any dispute, controversy or proceeding arising out of
or related to this Agreement. Each of the parties hereto authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this paragraph according to the procedure for the giving of
notices as set forth in this Agreement. Any final judgment rendered against
either of the parties hereto in any action or proceeding shall be conclusive as
to the subject of such final judgment and may be enforced in other jurisdictions
in any manner provided by law.
11. ASSIGNMENT. Employee may not assign, transfer or convey this
Agreement or any interest therein. This Agreement and all of the Company's
rights and obligations hereunder may be assigned or transferred by it, in whole
or in part, to and shall be binding upon and inure to the benefit of any
successor of the Company, but any such assignment shall not relieve the Company
of any of its obligations. The term "successor" shall mean only any corporation
or other business entity which by merger, consolidation, purchase of assets or
otherwise succeeds to or otherwise acquires all or substantially all of the
assets of the Company.
12. ARBITRATION. Without limiting the Company's right to seek injunctive
relief as described in Section 9, in the event of a disagreement or dispute
between the Company and Employee related to this Agreement, the matter will be
finally settled in Los Angeles, California by arbitration by a single arbitrator
in a proceeding conducted under the rules of the American Arbitration
Association or any similar successor body, the arbitrator also apportioning the
costs of the arbitration. The decision of the arbitrator in writing shall be
final and binding upon the parties, and will not be subject to appeal. If either
party fails to abide by such decision, the other party may seek the order of any
federal or state court having jurisdiction thereof which shall enter judgment on
the decision of the arbitrator, and the party so failing to abide shall be
responsible for the payment of the expenses of the court proceeding and all
reasonable resulting enforcement expenses, including actual attorneys' fees.
13. AMENDMENT; WAIVER. Neither this Agreement nor any term or provision
hereof may be amended, waived, discharged or modified other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or modification is sought. Any amendment shall be effective
and binding on all of the parties hereto. Any waiver of the application of any
term or provision herein or breach hereof shall not be deemed to be a waiver of
any other term, provision or breach and shall not be deemed a waiver of any
subsequent application of such term or provision or the occurrence of a
subsequent breach.
14. NOTICES. All notices, requests and other communications under this
Agreement shall be in writing and shall be deemed to have been delivered on the
third Business Day after having been mailed in a general or branch post office
and enclosed in a registered or certified postage prepaid envelope; the first
Business Day after having been sent by recognized overnight
5
<PAGE>
courier; or when personally delivered; and, in each case, addressed to the
respective parties at the addresses stated below or to such other changed
addresses that the parties may have fixed by notice in accordance herewith. The
term "Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York, New York or Los Angeles,
California are authorized by law, regulation or executive order to remain
closed.
If to the Company: 800-U.S. Search
9701 Wilshire Blvd., Suite 700
Beverly Hills, California 90210
Attn: Peter Locke
With a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, 16th Floor
Los Angeles, California 90067
Attn: Barry L. Dastin, Esq.
If to Employee: Nicholas Matzorkis
9701 Wilshire Blvd., Suite 700
Beverly Hills, California 90210
With a copy to: Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, California 90067-3010
Attn: Nicholas Rockefeller, Esq.
15. ATTORNEY'S FEES. In any action or proceeding brought by any party
hereto to enforce any provision of this Agreement, or where any provision hereof
is validly asserted as a defense, the successful party (as determined by the
Deciding Authority (as defined below) based upon all of the facts and
circumstances) shall be entitled to recover reasonable attorney's fees and
expenses, in addition to its costs and expenses and any other available remedy,
associated with such action or proceeding as may be fixed by any court of
competent jurisdiction, or other jurisdiction or quasi-judicial body (including,
without limitation, an arbitrator or arbitrators) having jurisdiction thereof
("Deciding Authority") whether or not such action or proceeding results in a
final judgment or award.
16. SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
6
<PAGE>
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. INTERPRETATION. The parties hereto agree that each party has
participated in the drafting and preparation of this Agreement, and,
accordingly, in any construction or interpretation of this Agreement, the same
shall not be construed against any party by reason of the source of drafting.
19. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EMPLOYEE 800-U.S. SEARCH
a California corporation
/s/ Nicholas Matzorkis /s/ Peter Locke
- ----------------------------------- ----------------------------------------
Nicholas Matzorkis Peter Locke, President
7
<PAGE>
EXHIBIT 10.6
February 3, 1999
C. N. Keating, Jr.
Global Technology Consulting
2477 Jackson Street
San Francisco, CA 94115
Re: Employment Agreement
Dear Nick:
800-U.S. Search ("U.S. Search" or the "Company") is pleased to offer you the
position of President and Chief Executive Officer, effective February 1, 1999,
on the following terms (the "Agreement"):
As President and Chief Executive Officer of U.S. Search, you will initially work
full time in the Los Angeles area and perform the duties customarily associated
with this position, including direct responsibility for the overall profit and
loss of the Company, managing the Company's growth plans and such duties as may
be assigned to you by the Company's Board of Directors (the "Board"). The Board
may also, in its discretion, appoint you as the Vice Chairman of the Board to
perform the duties of such position. Of course, the Company may change work
location from time to time, as it deems necessary. You will be expected to work
the hours required by the nature of your work assignments.
Your initial base salary will be two hundred fifty thousand ($250,000) per year,
less standard deductions and withholdings, paid bi-weekly. You will be eligible
for annual performance bonuses based on goals and objectives to be mutually
agreed upon by you and the Board. The Company agrees that your incentive bonus
plan for 1999 will be completed as soon as possible after your employment
commences.
Upon approval by the Board, you will receive a stock option grant on your date
of hire with respect to four hundred (400) shares of the Company's common stock
(or such higher number that equals four percent (4%) of the fully diluted shares
outstanding of the Company at February 1, 1999) at an exercise price equal to
the price per share calculated on the basis of a $40,000,000 Company valuation,
which the Board believes is the fair market value of a share of the Company's
common stock on the date of the grant. One-third of these shares will vest on
the date of grant; one-third of these shares will vest one year after the date
of grant; and one-third of these shares will vest two years after the date of
grant. The terms of your stock option grant are set out in the Stock Option
Grant Notice, attached as Exhibit A.
In addition to your salary and incentive compensation, you will be eligible for
Company benefits consistent with Company policy, including vacation, life
insurance and medical and dental coverage. Details about these benefits will be
available for your review. Your compensation and benefits will be subject to
changes in the Company's compensation and benefit plans applicable to Company
executives generally.
1.
<PAGE>
Although your current work location will be our Los Angeles area office, the
Company may consider, at its sole discretion, a relocation of its principal
office and your work location to the San Francisco Bay Area or other geographic
region within California. As long as the Company is located in the Los Angeles
area, however, you will be reimbursed while performing your employment
obligations in the Los Angeles area for documented reasonable and actual: (i)
living expenses to a maximum of twenty five hundred dollars ($2,500) per month,
and (ii) approved travel expenses consistent with Company policy. The Company
may, at its sole discretion, provide you with certain actual and reasonable
relocation costs if it decides that the Company's principal place of business
will remain in the Los Angeles area. In addition, the Company agrees to
reimburse you for reasonable documented business expenses pursuant to Company
policy.
You will be expected to abide by all of the Company's policies and procedures.
As a condition of your employment, you agree to refrain from any use or
disclosure of the Company's proprietary or confidential information or
materials. As a further condition of your employment and due to the
developmental nature of U.S. Search's business, you also agree to sign and
comply with the Company's Proprietary Information and Inventions Agreement
(attached as Exhibit B).
By accepting this offer, you represent and warrant that you are not a party to
any agreement with any third party or prior employer that would conflict with or
inhibit your performance of your duties with the Company. You may, however,
continue to provide limited and incidental services to E-Net Corporation,
LICenergy A/S and MCMS Inc. and continue to serve on the Boards of Directors of
these three companies. You may also provide services to other third parties as
approved by the Board, which approval will not be unreasonably withheld. You
will be permitted to devote reasonable time to the supervision of your personal
investments, civic and charitable affairs, provided that such activities do not
interfere with the performance of your duties hereunder.
Your employment with the Company is for a specified term of one (1) year, after
which the Company may, in its discretion, extend the term of this Agreement for
up to an additional two (2) years. If the Company terminates your employment
without Cause: (i) at any time during the first two (2) years of your
employment, the Company will continue to pay you our base salary then in effect,
as severance, for twelve (12) months, subject to standard payroll deductions and
withholdings, payable on the Company's normal payroll dates; or (ii) at any time
during your third year of employment, the Company will continue to pay you, as
severance, your base salary then in effect for the remainder of that third year
of employment (e.g., if your employment terminates after 30 months of service,
you will receive six (6) months of your base salary as severance). In addition
to severance, if the Company terminates your employment without Cause, any
remaining unvested shares of your stock option grant will vest immediately, and
you will receive a pro-rata share of any bonus due for the period prior to the
termination date. You will not be entitled to any additional compensation or
benefits beyond what is provided in this paragraph. In the event of your
termination without Cause, these severance, bonus and stock vesting obligations
will not be reduced in any way by any compensation or benefits received (or
foregone) by you from sources other than the Company.
2.
<PAGE>
You acknowledge that by virtue of your position with the Company you will
develop considerable expertise in the business operations of the Company and
will have access to extensive confidential information with respect to the
Company. You also acknowledge that this is a personal services contract wherein
your services are of a special, unique, unusual, extraordinary and intellectual
character. You further acknowledge that your services will have peculiar value,
the loss of which cannot be reasonably or adequately compensated in damages in
an action at law. You acknowledge that the Company would be irreparably
damaged, and its substantial investment materially impaired, if you were to
enter into an activity competing with the Company's business in violation of the
terms of this Agreement or if you were to make unauthorized use or disclosure of
any confidential information concerning the business of Company. Therefore, in
order to protect the trade secrets and confidential and proprietary information
of the Company, you agree that while the Company is paying you severance, you
will not obtain employment with, perform work for, or engage in any professional
activity on behalf of any company, person or entity that directly competes in
any manner with the search business of the Company without first obtaining
written authorization from the Company. You further agree to notify the
Company, in writing, before you obtain employment with, perform work for, or
engage in any professional activity on behalf of any company, person or entity
in the search business. In the event that you engage in any such competitive
activity in breach of this Agreement, the Company may stop its salary
continuation payments to you and seek all equitable relief to prevent any such
competitive activity. You agree that if you resign from your employment with
the Company, all the provisions in this paragraph will apply if the Company
decides, in its sole discretion, to provide you with all of the same
consideration you would have received if your employment had been terminated
without Cause. If you resign and the Company does not exercise the option
described in the preceding sentence, all compensation and benefits will cease
immediately, and you will receive no severance benefits or any other
compensation or benefits. You expressly acknowledge that you are voluntarily
entering into this Agreement, that the provisions in this paragraph are a
material inducement to the Company in entering this Agreement, and that the
terms and conditions of this Agreement are fair and reasonable to you in all
respects.
If, at any time, your employment is terminated for Cause, all compensation and
benefits will cease immediately, and you will receive no severance benefits,
bonus, additional stock option vesting or any other compensation or benefits.
For purposes of this Agreement, "Cause" means: (i) conviction of any felony or
any crime involving moral turpitude or dishonesty; (ii) participation in a fraud
or act of dishonesty against the Company; (iii) material breach of the Company's
policies; (iv) intentional damage to the Company's property; (v) material breach
of this Agreement; (vi) intentional and material breach of the Proprietary
Information and Inventions Agreement or other disclosure of nonpublic Company
information; or (vii) participation in any conduct, either directly or
indirectly, that competes with the business of the Company.
If you become disabled during your employment with the Company, the Company may,
in its discretion, terminate your employment. You will, however, continue to
receive your base salary then in effect for six (6) months, less standard
deductions and withholdings, payable on the Company's normal payroll dates. For
the purposes of this Agreement, "disabled" means that, because of an illness or
injury that substantially limits one or more major life activity, you are unable
to perform one or more essential functions of your job, with or without
reasonable accommodation, for twelve (12) or more consecutive weeks.
3.
<PAGE>
In the event of a Change of Control of the Company, any remaining unvested
shares of your stock option grant will vest immediately upon the effective date
of the Change of Control. For the purposes of this Agreement, "Change of
Control" means: (i) a sale of substantially all of the assets of the Company,
(ii) a merger or consolidation in which the Company is not the surviving
corporation or (iii) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise.
To ensure rapid and economical resolution of any disputes that may arise under
this Agreement or that relate in any way to your employment, you and the Company
agree that any and all disputes or controversies of any nature whatsoever,
relating to your employment or regarding the interpretation, performance,
enforcement or breach of this Agreement will be resolved by confidential, final
and binding arbitration (rather than trial by jury or court or resolution in
some other forum), to the fullest extent permitted by law, by Judicial
Arbitration and Mediation Services/Endispute ("JAMS") under the then-existing
JAMS rules. Nothing in this paragraph is intended to prevent either party from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration. In the event that the prevailing party in
arbitration seeks enforcement of the arbitration award in a court of law, the
prevailing party in that court action will be entitled to be reimbursed for its
costs and attorneys fees.
The Company will indemnify and hold you harmless from and against any and all
costs, liability and necessary expenses from any claim by any person with
respect to, or in any way related to, your employment with the Company as
contemplated by this Agreement (including reasonable attorneys fees) resulting
from any act or omission by you within the authorized course and scope of your
employment with the Company, to the maximum extent permitted by law.
Notwithstanding this Agreement or any termination of your employment by the
Company pursuant to this Agreement or otherwise, you will be entitled to
coverage under the directors' and officers' liability coverage maintained by the
Company, as in effect or as may be subsequently replaced or modified, to the
same extent as other officers and directors of the Company.
This letter Agreement and Exhibits A and B constitute the complete, final and
exclusive embodiment of the entire agreement between you and U.S. Search with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement. All issues
and questions concerning the construction, validity, enforcement and
interpretation of this Agreement will be governed by, and construed in
accordance with, the laws of the State of California, without giving effect to
any choice of law or conflict of law rules or provisions that could cause the
applications of the laws of any jurisdiction other than the State of California.
As required by law, this offer of employment is subject to satisfactory proof of
your right to work in the United States.
4.
<PAGE>
I trust that the points outlined above fully clarify the terms of U.S. Search's
employment offer. If you choose to accept our offer under the terms described
above, please sign below and return this letter to me. I am excited by the
prospect of your joining the U.S. Search team. We look forward to a productive
and enjoyable work relationship helping U.S. Search grow.
Very truly yours,
800-U.S. Search
By: /s/ Peter Locke
---------------------------------
Peter Locke
Member, Board of Directors
Exhibit A - Stock Option Grant Notice (with attachments)
Exhibit B - Proprietary Information and Inventions Agreement
Acknowledged and Accepted:
/s/ C. N. Keating, Jr.
- -------------------------------
C. N. Keating, Jr.
Date: 2/4/99
--------------------------
5.
<PAGE>
EXHIBIT A
STOCK OPTION GRANT NOTICE
6.
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
7.
<PAGE>
EXHIBIT 10.7
March 18, 1999
William G. Langley
7510 S.W. Westmoor Way
Portland, OR 97225
Re: Employment Agreement
Dear Bill:
800-U.S. Search ("U.S. Search" or the "Company") is pleased to offer you the
position of Vice President and Chief Financial Officer, effective March 29,
1999, on the following terms (the "Agreement"):
As Vice President and Chief Financial Officer for U.S. Search, your work
location will be in the San Francisco Bay Area. Temporarily, however, you will
work in our current office in Southern California until the Company establishes
its office in the San Francisco Bay Area. You will be expected to perform the
duties customarily associated with this position, reporting directly to the
President and Chief Executive Officer. Of course, the Company may change your
job duties and work location from time to time, as it deems necessary. You will
be expected to work the hours required by the nature of your work assignments.
Your initial base salary will be one hundred seventy thousand ($170,000) per
year, less standard deductions and withholdings, paid bi-weekly. You will be
eligible for annual performance bonuses based on goals and objectives to be
mutually agreed upon by you and the Chief Executive Officer. The Company agrees
that your incentive bonus plan for 1999 will be completed within sixty (60) days
after your employment commences.
You will be granted a stock option on your date of hire with respect to one
hundred fifty (150) shares of the Company's common stock (or such higher number
that equals one and one half percent (1-1/2%) of the fully diluted shares
outstanding of the Company at the date of the grant (excluding convertible
debentures), at an exercise price equal to the price per share, calculated on
the basis of a $80,000,000 Company valuation, which the Board believes is the
fair market value of a share of the Company's common stock on the date of the
grant. The stock option will be an incentive stock option to the extent
permissible under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). One-fourth of the shares subject to the option will vest one year
after the date of grant; and an additional one-fourth of the shares will vest on
the three subsequent anniversaries of the date of grant. Your stock option will
be granted under the "800-U.S. Search Amended and Restated 1998 Stock Incentive
Plan" (the "Option Plan") and will be evidenced by the Stock Option Award
Agreement, attached as Exhibit A.
In addition to your salary and incentive compensation, you will be eligible for
executive-level Company benefits consistent with Company policy, including
vacation, 401(k) plan, life insurance
1.
<PAGE>
and medical and dental coverage. The Company will reimburse you for reasonable
documented business expenses pursuant to Company policy. Details about these
benefits will be available for your review. Your compensation and benefits will
be subject to changes in the Company's compensation and benefit plans applicable
to Company executives generally.
You will be expected to abide by all of the Company's policies and procedures.
As a condition of your employment, you agree to sign and comply with the
Company's Proprietary Information and Inventions Agreement (attached as Exhibit
B).
You may terminate your employment with the Company at any time and for any
reason whatsoever simply by notifying the Company. Likewise, the Company may
terminate your employment at any time and for any reason whatsoever, with or
without cause or advance notice. This at-will employment relationship cannot be
changed except in a writing signed by the Chief Executive Officer.
If the Company terminates your employment without Cause: (i) at any time during
the first twelve (12) months of your employment, the Company will continue to
pay your base salary then in effect, as severance, for six (6) months; or (ii)
at any time after your first twelve (12) months of employment, the Company will
continue to pay you, as severance, your base salary then in effect for the
following twelve (12) months, and you will receive a pro-rata share of any bonus
due for the period prior to the termination date. These severance payments will
be subject to standard payroll deductions and withholdings, payable on the
Company's normal payroll dates. You will not be entitled to any additional
compensation or benefits beyond what is provided in this paragraph. In the
event of your termination without Cause, the severance obligations will be
reduced by any compensation received from other employment or the substantial
equivalent of other employment (e.g., consulting) during the severance period.
You acknowledge that by virtue of your position with the Company you will
develop considerable expertise in the business operations of the Company and
will have access to extensive confidential information with respect to the
Company. You also acknowledge that this is a personal services contract wherein
your services are of a special, unique, unusual, extraordinary and intellectual
character. You further acknowledge that your services will have peculiar value,
the loss of which cannot be reasonably or adequately compensated in damages in
an action at law. You acknowledge that the Company would be irreparably
damaged, and its substantial investment materially impaired, if you were to
enter into an activity competing with the Company's business in violation of the
terms of this Agreement or if you were to make unauthorized use or disclosure of
any confidential information concerning the business of Company. Therefore, in
order to protect the trade secrets and confidential and proprietary information
of the Company, you agree that while the Company is paying you severance, you
will not obtain employment with, perform work for, or engage in any professional
activity on behalf of any company, person or entity that directly competes in
any manner with the business of the Company without first obtaining written
authorization from the Company. You further agree to notify the Company, in
writing, before you obtain employment with, perform work for, or engage in any
professional activity on behalf of any company, person or entity in the search
business. In the event that you engage in any such competitive activity in
breach of this Agreement, the Company may stop its salary continuation payments
to you and seek equitable relief (e.g., injunctions) to prevent any such
competitive activity. You agree that if you resign from your employment with
the Company, all the provisions in this paragraph will apply if
2.
<PAGE>
the Company decides, in its sole discretion, to provide you with all of the same
consideration you would have received if your employment had been terminated
without Cause. If you resign and the Company does not exercise the option
described in the preceding sentence, all compensation and benefits will cease
immediately, and you will receive no severance benefits or any other
compensation or benefits. You expressly acknowledge that you are voluntarily
entering into this Agreement, that the provisions in this paragraph are a
material inducement to the Company in entering this Agreement, and that the
terms and conditions of this Agreement are fair and reasonable to you in all
respects.
If, at any time, your employment is terminated for Cause, all compensation and
benefits will cease immediately, and you will receive no severance benefits,
pro-rated bonus or any other compensation or benefits. For purposes of this
Agreement, "Cause" means: (i) conviction of any felony or any crime involving
moral turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company; (iii) material breach of the Company's policies;
(iv) intentional damage to the Company's property; (v) material breach of this
Agreement; (vi) material breach of the Proprietary Information and Inventions
Agreement or other disclosure of nonpublic Company information; (vii)
participation in any conduct, either directly or indirectly, that competes with
the business of the Company; or (viii) conduct by you, which in the good faith
and reasonable determination of the Company's Chief Executive Officer
demonstrates gross unfitness to serve or unacceptable job performance.
To ensure rapid and economical resolution of any disputes that may arise under
this Agreement or that relate in any way to your employment, you and the Company
agree that any and all disputes or controversies of any nature whatsoever,
relating to your employment or regarding the interpretation, performance,
enforcement or breach of this Agreement will be resolved by confidential, final
and binding arbitration (rather than trial by jury or court or resolution in
some other forum), to the fullest extent permitted by law, by Judicial
Arbitration and Mediation Services/Endispute ("JAMS") under the then-existing
JAMS rules. Nothing in this paragraph is intended to prevent either party from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration. In the event that the prevailing party in
arbitration seeks enforcement of the arbitration award in a court of law, the
prevailing party in that court action will be entitled to be reimbursed for its
costs and attorneys fees.
This letter Agreement and Exhibits A and B constitute the complete, final and
exclusive embodiment of the entire agreement between you and U.S. Search with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement and the
provision in question will be modified by the court so as to be rendered
enforceable. All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement will be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to any choice of law or conflict of law rules or provisions that
could cause the application of the laws of any jurisdiction other than the State
of California.
3.
<PAGE>
As required by law, this offer of employment is subject to satisfactory proof of
your right to work in the United States.
I trust that the points outlined above fully clarify the terms of U.S. Search's
employment offer. If you choose to accept our offer under the terms described
above, please sign below and return this letter to me. I am excited by the
prospect of your joining the U.S. Search team. We look forward to a productive
and enjoyable work relationship helping U.S. Search grow.
Very truly yours,
800-U.S. Search
By: /s/ C. N. Keating, Jr.
------------------------------------------
C. N. Keating, Jr.
President and Chief Executive Officer
Exhibit A - Stock Option Award Agreement (with attachments)
Exhibit B - Proprietary Information and Inventions Agreement
Acknowledged and Accepted:
/s/ William G. Langley
- -------------------------------
William G. Langley
Date: 3/25/99
---------------
4.
<PAGE>
EXHIBIT A
STOCK OPTION AWARD AGREEMENT
5.
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
6.
<PAGE>
EXHIBIT 10.8
March 17, 1999
Robert J. Richards
180 - 8th Avenue
San Francisco, CA 94118
Re: Employment Agreement
Dear Bob:
800-U.S. Search ("U.S. Search" or the "Company") is pleased to offer you the
position of Vice President of Operations, effective April 5, 1999, on the
following terms (the "Agreement"):
As Vice President of Operations for U.S. Search, your work location will be in
the San Francisco Bay Area. Temporarily, however, you will work in our current
office in Southern California until the Company establishes its office in the
San Francisco Bay Area. You will be expected to perform the duties customarily
associated with this position, reporting directly to the President and Chief
Executive Officer. Of course, the Company may change your job duties and work
location from time to time, as it deems necessary. You will be expected to work
the hours required by the nature of your work assignments.
Your initial base salary will be one hundred sixty thousand ($160,000) per year,
less standard deductions and withholdings, paid bi-weekly. You will be eligible
for annual performance bonuses based on goals and objectives to be mutually
agreed upon by you and the Chief Executive Officer. The Company agrees that
your incentive bonus plan for 1999 will be completed within sixty (60) days
after your employment commences.
You will be granted a stock option on your date of hire with respect to one
hundred fifty (150) shares of the Company's common stock (or such higher number
that equals one and one half percent (1-1/2%) of the fully diluted shares
outstanding of the Company at the date of the grant (excluding convertible
debentures), at an exercise price equal to the price per share, calculated on
the basis of a $60,000,000 Company valuation, which the Board believes is the
fair market value of a share of the Company's common stock on the date of the
grant. The stock option will be an incentive stock option to the extent
permissible under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). One-fourth of the shares subject to the option will vest one year
after the date of grant; and an additional one-fourth of the shares will vest on
the three subsequent anniversaries of the date of grant. Your stock option will
be granted under the "800-U.S. Search Amended and Restated 1998 Stock Incentive
Plan" (the "Option Plan") and will be evidenced by the Stock Option Award
Agreement, attached as Exhibit A.
In addition to your salary and incentive compensation, you will be eligible for
executive-level Company benefits consistent with Company policy, including
vacation, 401(k) plan, life insurance and medical and dental coverage. The
Company will reimburse you for reasonable documented
1.
<PAGE>
business expenses pursuant to Company policy. Details about these benefits will
be available for your review. Your compensation and benefits will be subject to
changes in the Company's compensation and benefit plans applicable to Company
executives generally.
You will be expected to abide by all of the Company's policies and procedures.
As a condition of your employment, you agree to sign and comply with the
Company's Proprietary Information and Inventions Agreement (attached as Exhibit
B).
You may terminate your employment with the Company at any time and for any
reason whatsoever simply by notifying the Company. Likewise, the Company may
terminate your employment at any time and for any reason whatsoever, with or
without cause or advance notice. This at-will employment relationship cannot be
changed except in a writing signed by the Chief Executive Officer.
If the Company terminates your employment without Cause: (i) at any time during
the first twelve (12) months of your employment, the Company will continue to
pay your base salary then in effect, as severance, for six (6) months; or (ii)
at any time after your first twelve (12) months of employment, the Company will
continue to pay you, as severance, your base salary then in effect for the
following twelve (12) months, and you will receive a pro-rata share of any bonus
due for the period prior to the termination date. These severance payments will
be subject to standard payroll deductions and withholdings, payable on the
Company's normal payroll dates. You will not be entitled to any additional
compensation or benefits beyond what is provided in this paragraph. In the
event of your termination without Cause, the severance obligations will be
reduced by any compensation received from other employment or the substantial
equivalent of other employment (e.g., consulting) during the severance period.
You acknowledge that by virtue of your position with the Company you will
develop considerable expertise in the business operations of the Company and
will have access to extensive confidential information with respect to the
Company. You also acknowledge that this is a personal services contract wherein
your services are of a special, unique, unusual, extraordinary and intellectual
character. You further acknowledge that your services will have peculiar value,
the loss of which cannot be reasonably or adequately compensated in damages in
an action at law. You acknowledge that the Company would be irreparably
damaged, and its substantial investment materially impaired, if you were to
enter into an activity competing with the Company's business in violation of the
terms of this Agreement or if you were to make unauthorized use or disclosure of
any confidential information concerning the business of Company. Therefore, in
order to protect the trade secrets and confidential and proprietary information
of the Company, you agree that while the Company is paying you severance, you
will not obtain employment with, perform work for, or engage in any professional
activity on behalf of any company, person or entity that directly competes in
any manner with the business of the Company without first obtaining written
authorization from the Company. You further agree to notify the Company, in
writing, before you obtain employment with, perform work for, or engage in any
professional activity on behalf of any company, person or entity in the search
business. In the event that you engage in any such competitive activity in
breach of this Agreement, the Company may stop its salary continuation payments
to you and seek equitable relief (e.g., injunctions) to prevent any such
competitive activity. You agree that if you resign from your employment with
the Company, all the provisions in this paragraph will apply if the Company
decides, in its sole discretion, to provide you with all of the same
consideration you
2.
<PAGE>
would have received if your employment had been terminated without Cause. If you
resign and the Company does not exercise the option described in the preceding
sentence, all compensation and benefits will cease immediately, and you will
receive no severance benefits or any other compensation or benefits. You
expressly acknowledge that you are voluntarily entering into this Agreement,
that the provisions in this paragraph are a material inducement to the Company
in entering this Agreement, and that the terms and conditions of this Agreement
are fair and reasonable to you in all respects.
If, at any time, your employment is terminated for Cause, all compensation and
benefits will cease immediately, and you will receive no severance benefits,
pro-rated bonus or any other compensation or benefits. For purposes of this
Agreement, "Cause" means: (i) conviction of any felony or any crime involving
moral turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company; (iii) material breach of the Company's policies;
(iv) intentional damage to the Company's property; (v) material breach of this
Agreement; (vi) material breach of the Proprietary Information and Inventions
Agreement or other disclosure of nonpublic Company information; (vii)
participation in any conduct, either directly or indirectly, that competes with
the business of the Company; or (viii) conduct by you, which in the good faith
and reasonable determination of the Company's Chief Executive Officer
demonstrates gross unfitness to serve or unacceptable job performance.
To ensure rapid and economical resolution of any disputes that may arise under
this Agreement or that relate in any way to your employment, you and the Company
agree that any and all disputes or controversies of any nature whatsoever,
relating to your employment or regarding the interpretation, performance,
enforcement or breach of this Agreement will be resolved by confidential, final
and binding arbitration (rather than trial by jury or court or resolution in
some other forum), to the fullest extent permitted by law, by Judicial
Arbitration and Mediation Services/Endispute ("JAMS") under the then-existing
JAMS rules. Nothing in this paragraph is intended to prevent either party from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration. In the event that the prevailing party in
arbitration seeks enforcement of the arbitration award in a court of law, the
prevailing party in that court action will be entitled to be reimbursed for its
costs and attorneys fees.
This letter Agreement and Exhibits A and B constitute the complete, final and
exclusive embodiment of the entire agreement between you and U.S. Search with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement and the
provision in question will be modified by the court so as to be rendered
enforceable. All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement will be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to any choice of law or conflict of law rules or provisions that
could cause the application of the laws of any jurisdiction other than the State
of California.
3.
<PAGE>
As required by law, this offer of employment is subject to satisfactory proof of
your right to work in the United States.
I trust that the points outlined above fully clarify the terms of U.S. Search's
employment offer. If you choose to accept our offer under the terms described
above, please sign below and return this letter to me. I am excited by the
prospect of your joining the U.S. Search team. We look forward to a productive
and enjoyable work relationship helping U.S. Search grow.
Very truly yours,
800-U.S. Search
By: /s/ C. N. Keating, Jr.
-----------------------------------------
C. N. Keating, Jr.
President and Chief Executive Officer
Exhibit A - Stock Option Award Agreement (with attachments)
Exhibit B - Proprietary Information and Inventions Agreement
Acknowledged and Accepted:
/s/ Robert J. Richards
- --------------------------------
Robert J. Richards
Date: 3/18/99
--------------------
4.
<PAGE>
EXHIBIT A
STOCK OPTION AWARD AGREEMENT
5.
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
6.
<PAGE>
EXHIBIT 10.9
March 18, 1999
Meg Shea-Chiles
4119 East Avenue
Hayward, CA 94542
Re: Employment Agreement
Dear Meg:
800-U.S. Search ("U.S. Search" or the "Company") is pleased to offer you the
position of Vice President of Business Development, effective May 3, 1999, on
the following terms (the "Agreement"):
As Vice President of Business Development for U.S. Search, your work location
will be in the San Francisco Bay Area. Temporarily, however, you will work in
our current office in Southern California until the Company establishes its
office in the San Francisco Bay Area. You will be expected to perform the
duties customarily associated with this position, reporting directly to the
President and Chief Executive Officer. Of course, the Company may change your
job duties and work location from time to time, as it deems necessary. You will
be expected to work the hours required by the nature of your work assignments.
Your initial base salary will be one hundred fifty thousand ($150,000) per year,
less standard deductions and withholdings, paid bi-weekly. You will be eligible
for annual performance bonuses based on goals and objectives to be mutually
agreed upon by you and the Chief Executive Officer. The Company agrees that
your incentive bonus plan for 1999 will be completed within sixty (60) days
after your employment commences.
You will be granted a stock option on your date of hire with respect to one
hundred fifty (150) shares of the Company's common stock (or such higher number
that equals one and one half percent (1-1/2%) of the fully diluted shares
outstanding of the Company at the date of the grant (excluding convertible
debentures), at an exercise price equal to the price per share, calculated on
the basis of a $60,000,000 Company valuation, which the Board believes is the
fair market value of a share of the Company's common stock on the date of the
grant. The stock option will be an incentive stock option to the extent
permissible under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). One-fourth of the shares subject to the option will vest one year
after the date of grant; and an additional one-fourth of the shares will vest on
the three subsequent anniversaries of the date of grant. Your stock option will
be granted under the "800-U.S. Search Amended and Restated 1998 Stock Incentive
Plan" (the "Option Plan") and will be evidenced by the Stock Option Award
Agreement, attached as Exhibit A.
In addition to your salary and incentive compensation, you will be eligible for
executive-level Company benefits consistent with Company policy, including
vacation, 401(k) plan, life insurance
1.
<PAGE>
and medical and dental coverage. The Company will reimburse you for reasonable
documented business expenses pursuant to Company policy. Details about these
benefits will be available for your review. Your compensation and benefits will
be subject to changes in the Company's compensation and benefit plans applicable
to Company executives generally.
You will be expected to abide by all of the Company's policies and procedures.
As a condition of your employment, you agree to sign and comply with the
Company's Proprietary Information and Inventions Agreement (attached as Exhibit
B).
You may terminate your employment with the Company at any time and for any
reason whatsoever simply by notifying the Company. Likewise, the Company may
terminate your employment at any time and for any reason whatsoever, with or
without cause or advance notice. This at-will employment relationship cannot be
changed except in a writing signed by the Chief Executive Officer.
If the Company terminates your employment without Cause: (i) at any time during
the first twelve (12) months of your employment, the Company will continue to
pay your base salary then in effect, as severance, for six (6) months; or (ii)
at any time after your first twelve (12) months of employment, the Company will
continue to pay you, as severance, your base salary then in effect for the
following twelve (12) months, and you will receive a pro-rata share of any bonus
due for the period prior to the termination date. These severance payments will
be subject to standard payroll deductions and withholdings, payable on the
Company's normal payroll dates. You will not be entitled to any additional
compensation or benefits beyond what is provided in this paragraph. In the
event of your termination without Cause, the severance obligations will be
reduced by any compensation received from other employment or the substantial
equivalent of other employment (e.g., consulting) during the severance period.
You acknowledge that by virtue of your position with the Company you will
develop considerable expertise in the business operations of the Company and
will have access to extensive confidential information with respect to the
Company. You also acknowledge that this is a personal services contract wherein
your services are of a special, unique, unusual, extraordinary and intellectual
character. You further acknowledge that your services will have peculiar value,
the loss of which cannot be reasonably or adequately compensated in damages in
an action at law. You acknowledge that the Company would be irreparably
damaged, and its substantial investment materially impaired, if you were to
enter into an activity competing with the Company's business in violation of the
terms of this Agreement or if you were to make unauthorized use or disclosure of
any confidential information concerning the business of Company. Therefore, in
order to protect the trade secrets and confidential and proprietary information
of the Company, you agree that while the Company is paying you severance, you
will not obtain employment with, perform work for, or engage in any professional
activity on behalf of any company, person or entity that directly competes in
any manner with the business of the Company without first obtaining written
authorization from the Company. You further agree to notify the Company, in
writing, before you obtain employment with, perform work for, or engage in any
professional activity on behalf of any company, person or entity in the search
business. In the event that you engage in any such competitive activity in
breach of this Agreement, the Company may stop its salary continuation payments
to you and seek equitable relief (e.g., injunctions) to prevent any such
competitive activity. You agree that if you resign from your employment with
the Company, all the provisions in this paragraph will apply if
2.
<PAGE>
the Company decides, in its sole discretion, to provide you with all of the same
consideration you would have received if your employment had been terminated
without Cause. If you resign and the Company does not exercise the option
described in the preceding sentence, all compensation and benefits will cease
immediately, and you will receive no severance benefits or any other
compensation or benefits. You expressly acknowledge that you are voluntarily
entering into this Agreement, that the provisions in this paragraph are a
material inducement to the Company in entering this Agreement, and that the
terms and conditions of this Agreement are fair and reasonable to you in all
respects.
If, at any time, your employment is terminated for Cause, all compensation and
benefits will cease immediately, and you will receive no severance benefits,
pro-rated bonus or any other compensation or benefits. For purposes of this
Agreement, "Cause" means: (i) conviction of any felony or any crime involving
moral turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company; (iii) material breach of the Company's policies;
(iv) intentional damage to the Company's property; (v) material breach of this
Agreement; (vi) material breach of the Proprietary Information and Inventions
Agreement or other disclosure of nonpublic Company information; (vii)
participation in any conduct, either directly or indirectly, that competes with
the business of the Company; or (viii) conduct by you, which in the good faith
and reasonable determination of the Company's Chief Executive Officer
demonstrates gross unfitness to serve or unacceptable job performance.
To ensure rapid and economical resolution of any disputes that may arise under
this Agreement or that relate in any way to your employment, you and the Company
agree that any and all disputes or controversies of any nature whatsoever,
relating to your employment or regarding the interpretation, performance,
enforcement or breach of this Agreement will be resolved by confidential, final
and binding arbitration (rather than trial by jury or court or resolution in
some other forum), to the fullest extent permitted by law, by Judicial
Arbitration and Mediation Services/Endispute ("JAMS") under the then-existing
JAMS rules. Nothing in this paragraph is intended to prevent either party from
obtaining injunctive relief in court to prevent irreparable harm pending the
conclusion of any such arbitration. In the event that the prevailing party in
arbitration seeks enforcement of the arbitration award in a court of law, the
prevailing party in that court action will be entitled to be reimbursed for its
costs and attorneys fees.
This letter Agreement and Exhibits A and B constitute the complete, final and
exclusive embodiment of the entire agreement between you and U.S. Search with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement and the
provision in question will be modified by the court so as to be rendered
enforceable. All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement will be governed by, and
construed in accordance with, the laws of the State of California, without
giving effect to any choice of law or conflict of law rules or provisions that
could cause the application of the laws of any jurisdiction other than the State
of California.
3.
<PAGE>
As required by law, this offer of employment is subject to satisfactory proof of
your right to work in the United States.
I trust that the points outlined above fully clarify the terms of U.S. Search's
employment offer. If you choose to accept our offer under the terms described
above, please sign below and return this letter to me. I am excited by the
prospect of your joining the U.S. Search team. We look forward to a productive
and enjoyable work relationship helping U.S. Search grow.
Very truly yours,
800-U.S. Search
By: /s/ C. N. Keating, Jr.
----------------------------------------
C. N. Keating, Jr.
President and Chief Executive Officer
Exhibit A - Stock Option Award Agreement (with attachments)
Exhibit B - Proprietary Information and Inventions Agreement
Acknowledged and Accepted:
/s/ M. Shea-Chiles
- -----------------------------
Meg Shea-Chiles
Date:3/20/99
------------------
4.
<PAGE>
EXHIBIT A
STOCK OPTION AWARD AGREEMENT
5.
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
6.
<PAGE>
EXHIBIT 10.10
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made and
entered into as of July 1, 1998 between THE KUSHNER-LOCKE COMPANY, a California
corporation ("Kushner-Locke"), and 800-U.S. SEARCH, a California corporation
("U.S. Search").
WHEREAS, for a period of time, U.S. Search requires certain services for
its business that it currently cannot provide for itself;
WHEREAS, Kushner-Locke is willing to provide such services to U.S. Search;
and
WHEREAS, the parties hereto wish to provide for the sharing of employees
and other costs between Kushner-Locke and U.S. Search upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, covenants and agreements
hereinafter contained and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. SERVICES TO BE PROVIDED. During the Term (as defined below), Kushner-
Locke will provide, or will cause to be provided, to U.S. Search, such general
administrative services as are reasonably requested from time to time by U.S.
Search and are reasonably capable of being provided by Kushner-Locke, in
Kushner-Locke's sole determination, at such time, including but not limited to,
financial management services, employee benefits administration, accounting and
other services (collectively, the "Services"). Unless otherwise agreed by
Kushner-Locke, the Services will be performed in Los Angeles, California, and
Kushner-Locke will not be required to render any services that would necessitate
that Kushner-Locke agree to be subject to service of process or qualify to do
business in any other jurisdiction where it would otherwise not be required to
be so subject or so qualified. If the provision of any Service is terminated or
is no longer performed by Kushner-Locke, then Kushner-Locke shall not be
obligated to reinstate providing such Services unless Kushner-Locke shall agree
thereto in writing.
Employees or consultants performing the Services shall be employees or
consultants of Kushner-Locke, and Kushner-Locke shall be responsible for the
hiring, discharge, supervision and management of such employees and consultants
and the establishment and revision of all terms of such employment or consulting
relationship, including, without limitation, wage scales, rates of compensation,
employee benefits, rates and conditions of employment, inservice training and
job and position descriptions with respect to such employees and consultants.
Nothing herein shall be deemed to preclude U.S. Search from hiring its own
personnel to perform all or any of the Services or from obtaining all or any of
the Services from other sources or suppliers if such Services or comparable
Services can be obtained from such alternate sources or suppliers on terms and
conditions more favorable to U.S. Search than those provided by Kushner-Locke.
1.
<PAGE>
2. FEES FOR SERVICES. U.S. Search shall pay to Kushner-Locke, for the
provision of the Services, the sum of Thirty Five Thousand Dollars ($35,000) per
month during the Term (the "Fee"), payable on the first of each month commencing
July 1, 1998; provided, however, that in the event U.S. Search hires its own
personnel and/or uses other sources or suppliers to perform Services, the Fee to
be paid after U.S. Search hires such personnel or uses such other sources or
suppliers (assuming that Kushner-Locke does not provide such Services for the
applicable period) shall be decreased by an amount reasonably agreed upon by the
parties; provided, further, however, that if after the reduction, if any, of the
Fee pursuant to the immediately preceding proviso the Fee would be reduced to
zero, this Agreement, other than the provisions of Section 4 hereof, shall
terminate.
3. PERFORMANCE OF SERVICES. Kushner-Locke shall use commercially
reasonable efforts to perform all the Services to be performed under this
Agreement in a manner consistent with past practice or any such improved
practices as Kushner-Locke deems prudent. Nothing provided herein shall require
Kushner-Locke to violate any agreement with any third party. U.S. Search shall
provide direction to Kushner-Locke where business decisions arc required in the
performance of the Services. Where necessary for the performance of the Services
hereunder, U.S. Search shall designate Kushner-Locke as its authorized agent.
U.S. Search shall promptly notify Kushner-Locke of any instance where
Services are considered by U.S. Search to be unsatisfactorily performed. Upon
receipt of any such notice, Kushner-Locke shall promptly investigate U.S.
Search's claim and if Kushner-Locke finds such claim to be justified, it shall
act to correct such unsatisfactory Services.
4. LIMITATION OF LIABILITY; INDEMNIFICATION.
(a) LIMITATION OF LIABILITY. Kushner-Locke and its affiliates, and
the officers, directors, employees, shareholders, partners, agents, consultants
and other representatives (collectively, the "Representatives") of Kushner-Locke
and/or its affiliates shall not be liable to U.S. Search, its affiliates, or to
any Representative of U.S. Search or its affiliates, for any obligation, cost,
damage, claim, demand, debt, expense, loss, judgment, assessment or other
liability, including, without limitation, any special, indirect, consequential
or punitive damages, any court costs, costs of preparation or attorneys' fees or
expenses, or any accountant's or expert witness' fees (collectively,
"Liabilities") (i) arising out of, in connection with or related to, or any
allegations with respect thereto, of Kushner-Locke's or any of its affiliates'
or any of their respective Representatives' actions or failures to act with
respect to the Services to be provided hereunder, or (ii) as a result of U.S.
Search's or any of its affiliates' or any of their respective Representatives'
reliance on any advice or data that Kushner-Locke, any of its affiliates, any
person or entity providing Services hereunder or any of their respective
Representatives may provide pursuant to this Agreement; provided, however, that
the foregoing shall not apply to limit any Liability of a party only to the
extent that such Liability is determined by a judgment of a court of competent
jurisdiction which is no longer subject to appeal or further review to have
resulted primarily from such party's gross negligence or willful misconduct in
connection with the provision of any of the Services.
2.
<PAGE>
(B) INDEMNIFICATION. U.S. Search shall indemnify and hold harmless
the Representatives from and against any Liabilities which any Representative
may sustain or incur by reason of any claim, action, demand, allegation, suit or
recovery by any person or entity (i) arising out of, in connection with or
related to, this Agreement, or any allegations with respect thereto, or (ii)
arising out of, in connection with or related to, the performance or failure to
perform in accordance with this Agreement, by any of the Representatives, or any
allegations with respect thereto; provided, however, that U.S. Search will not
be responsible for any Liabilities of any Representative that are determined by
a judgment of a court of competent jurisdiction which is no longer subject to
appeal or further review to have resulted primarily from such Representative's
gross negligence or willful misconduct in connection with the provision of any
of the Services. U.S. Search also agrees to reimburse any Representative for all
court costs, reasonable attorneys' fees or expenses, and any accountant's or
expert witness' fees, as they are incurred in connection with enforcing such
Representative's indemnification rights under this Agreement.
5. TERM AND TERMINATION. The initial term of this Agreement (the "Term")
shall commence as of July 1, 1998 and end twelve (12) months thereafter, unless
sooner terminated by Kushner-Locke or U.S. Search on not less than (other than
in connection with the second proviso of Section 2 hereof) thirty (30) days'
prior written notice; provided, however, that the provisions of Section 4 hereof
shall survive termination of this Agreement, whether upon the end of the Term or
otherwise.
6. SUCCESSORS AND ASSIGNS: NO THIRD PARTY BENEFICIARIES. The rights and
obligations of any party to this Agreement shall not be assignable without the
prior written consent of the other party. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the parties.
Except as specifically set forth in Section 4 hereof, nothing contained in this
Agreement is intended to confer upon any person or entity, other than the
parties and their respective successors, permitted assigns and nominees, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
7. RELATIONSHIP OF THE PARTIES. In all matters relating to this
Agreement, each party hereto shall be solely responsible for the acts of its
Representatives, and Representatives of one party shall not be considered
employees or Representatives of the other party. Except as otherwise provided
herein, no party shall have any right, power or authority to create any
obligation, express or implied, on behalf of any other party. In performing the
Services or causing Services to be performed for U.S. Search hereunder. Kushner-
Locke shall be acting as an independent contractor to U.S. Search and nothing in
this Agreement is intended to create or constitute a joint venture, partnership
or similar relationship between the parties hereto or persons or entities
referred to herein.
8. U.S. SEARCH'S CORPORATE POWERS. Nothing herein shall be construed to
relieve the directors or officers of U.S. Search from the performance of their
respective duties or limit the exercise of their powers. Nothing herein shall
give Kushner-Locke the power to take any actions on behalf of U.S. Search not
properly delegated to Kushner-Locke that are within the authority of U.S.
Search's directors or officers.
3.
<PAGE>
9. FORCE MAJEURE. If Kushner-Locke is prevented from performing any
Services hereunder, in whole or in part, as a result of delays caused by U.S.
Search or any act of God, war, civil disturbance, court order, strike, labor
dispute, earthquake, fire, flood, hurricane, tornado or other casualty of
similar nature, shortages of labor or material, law or regulation of any
governmental authority or body, or other cause beyond the reasonable control of
Kushner-Locke, such nonperformance shall not be a default hereunder. Kushner-
Locke shall take all reasonable actions to resume performance of its obligations
hereunder as soon as feasible after the resolution of such event or occurrence
causing such delay.
10. MISCELLANEOUS PROVISIONS.
(A) GOVERNING LAW. This Agreement shall be governed by, construed,
interpreted and enforced in accordance with the laws or the State of California
without regard to the conflict of laws principles of such state. The parties
hereto agree that all actions or proceedings arising in connection with this
Agreement shall be tried and litigated exclusively in the state and federal
courts located in the County of Los Angeles, State of California. The
aforementioned choice of venue is intended by the parties hereto to be mandatory
and not permissive in nature, thereby precluding the possibility of litigation
between the parties hereto with respect to or arising out of this Agreement in
any jurisdiction other than that specified in this paragraph. Each of the
parties hereto hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any proceeding brought in accordance with this paragraph, and stipulates that
the state and federal courts located in the County of Los Angeles, State of
California shall have in personam jurisdiction and venue over each of them for
the purpose of litigating any dispute, controversy or proceeding arising out of
or related to this Agreement. Each of the parties hereto authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this paragraph according to the procedure for the giving of
notices as set forth in this Agreement. Any final judgment rendered against
either of the parties hereto in any action or proceeding shall be conclusive as
to the subject of such final judgment and may be enforced in other jurisdictions
in any manner provided by law.
(B) NOTICES. All notices, requests and other communications under
this Agreement shall be in writing and shall be deemed to have been delivered 72
hours after having been mailed in a general or branch post office and enclosed
in a registered or certified postage prepaid envelope; 24 hours after having
been sent by recognized overnight courier; or when personally delivered; and, in
each case, addressed to the respective parties at the addresses stated below or
to such other changed addresses that the parties may have fixed by notice in
accordance herewith:
If to Kushner-Locke: The Kushner-Locke Company
11601 Wilshire Blvd., 21/st/ Floor
Los Angeles, California 90025
Attention: Bruce Lilliston, Esq.
Telephone: (310) 481-2000
Facsimile: (310)481-2101
4.
<PAGE>
If to U.S. Search: 800-U.S. Search
9701 Wilshire Blvd., Suite 700
Beverly Hills, California 90212
Attention: Robert Zakari, Esq.
Telephone: (310) 553-7000
Facsimile: (310) 786-8349
(C) SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(D) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(E) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
of this Agreement.
(F) AMENDMENT; WAIVER. Neither this Agreement nor any term or
provision hereof may be amended, waived, discharged or modified other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or modification is sought. Any amendment shall be
effective and binding on all of the parties hereto. Any waiver of the
application of any term or provision herein or breach hereof shall not be deemed
to be a waiver of any other term, provision or breach and shall not be deemed a
waiver of any subsequent application of such term or provision or the occurrence
of a subsequent breach.
(G) SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and
agrees that (i) monetary damages would be an inadequate remedy for a breach of
any of the provisions of this Agreement, (ii) each party shall therefore be
entitled to specific performance of its rights under this Agreement without
obligation to post bond or other security in seeking such relief and (iii) in
the event of any action for specific performance of any right under this
Agreement by any party hereto against the other party hereto (such latter party,
the "Defending Party"), the Defending Party shall waive the defense that a
remedy at law would be adequate.
(H) ATTORNEY'S FEES. In any action or proceeding brought by any party
hereto to enforce any provision of this Agreement, or where any provision hereof
is validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorney's fees and expenses, in addition to its cost and
expense and any other available remedy, associated with such action or
proceeding as may be fixed by any court of competent jurisdiction, or other
judicial or quasijudicial body (including, without limitation, an arbitrator or
arbitrators) having jurisdiction thereof whether or not such action or
proceeding results in a final judgment or award.
5.
<PAGE>
(I) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
IN WITNESS WHEREOF, the parties hereto have executed this Administrative
Services Agreement to be effective as of the date first above written.
THE KUSHNER-LOCKE COMPANY
By: /s/ Peter Locke
------------------------------------
Name:_____________________________
Title:____________________________
800-U.S. SEARCH
By: /s/ Nicholas Matzorkis
------------------------------------
Name:_____________________________
Title:____________________________
6.
<PAGE>
EXHIBIT 10.11
ADDENDUM TO LYCOS, INC. ADVERTISING CONTRACT
This Addendum to the attached Lycos, Inc. Advertising Contract (the
"Advertising Contract") by and between Lycos, Inc. ("Lycos") and 1-800-US-SEARCH
("Company"), which is incorporated herein by reference, is dated February 11,
1999. The effective date of this Addendum shall be March 1, 1999 (the "Effective
Date") and, except as specifically modified by this Addendum, all terms and
conditions in the Advertising Contract shall remain in full force and effect. To
the extent any provision of this Addendum and the Advertising Contract conflict,
this Addendum shall govern.
A. Payment/Impression Terms
------------------------
1. Year 1 payments shall total $[*] for 500,000,000 guaranteed
impressions (which translates into a $[*] CPM). During Year 1, payments shall be
made in the amounts of $[*] for each of March and April, and $[*] for each of
the ten (10) months thereafter. Year 2 payments shall total the actual number of
impressions delivered (to be mutually agreed) multiplied by a $[*] CPM. Payments
shall be due before the end of the month following the month in which the
impressions are delivered (the "Payment Date").
2. In addition to the above, on the date hereof the Company shall provide
Lycos with a check (dated as of the date of the Advertising Contract) in the
amount of $[*] which equals the amount that will become due under existing
contracts between the parties; provided, however, that Lycos shall not be
permitted to present such check for payment or deposit until February 28, 1999.
B. Term/Cancellation/Renewal
-------------------------
1. The term of the Advertising Contract shall expire on the second
anniversary of the Effective Date. Such term shall non-cancelable by either
party, except under the following circumstances:
a. If Lycos does not receive payment before the close of business on
the applicable Payment Date, Lycos shall notify Company of such
delay and Company shall have five (5) business days to make the
outstanding payment and cure such default (the "Cure Period").
Lycos shall be permitted to terminate the Advertising Contract
immediately upon notice to Company if Lycos does not receive
payment by the expiration of the Cure Period.
b. Lycos shall be permitted to terminate the Advertising Contract
immediately upon 30 days notice to Company if Lycos acquires or
is acquired by an entity that sells public records.
c. Either party shall be permitted to terminate the Advertising
Contract if the parties cannot agree on the impression levels for
Year 2.
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
1.
<PAGE>
C. Exclusivity
-----------
1. Lycos shall not accept paid advertising for the Lycos.com, Tripod.com,
WhoWhere.com, Angelfire.com or MailCity.com sites from any other company whose
primary business and revenue is derived from the sale of public records.
2. Notwithstanding the foregoing, Lycos shall be permitted to accept
advertising from any parent company or conglomerate that sells public records
but whose primary business is not the sale of public records, provided however,
that such companies shall not be permitted to advertise the sale of public
records on the Lycos.com, Tripod.com, WhoWhere.com, Angelfire.com or
MailCity.com sites.
3. The provisions of this Section C pertain to paid advertising
placements only, and do not pertain to search results or directory listings for
which Lycos receives no compensation.
D. General
-------
1. Company shall be offered to opportunity to bid for the right to
provide similar services to other existing and future online properties.
2. The parties shall keep the financial terms of this Addendum
strictly confidential, unless there is written consent by both parties.
LYCOS, INC. 1-800-US-SEARCH
/s/ David G. Peterson /s/ C. Nicholas Keating, Jr.
- ------------------------------- -----------------------------------
Duly Authorized Duly Authorized
2.
<PAGE>
LYCOS NETWORK ADVERTISING CONTRACT - PAGE 2
TERMS AND CONDITIONS
1. General. A signed contract must be submitted to Lycos five days in advance
-------
of initial publication date. By submitting advertising for inclusion on a
Lycos site, advertiser/agency agrees to be bound by the terms of this
contract. No conditions other than those set forth herein shall be binding
on Lycos unless specifically agreed to in writing by Lycos. Lycos will not
be bound by conditions printed or appearing on order blanks or copy
instructions submitted by or on behalf of the advertiser/agency. This
contract supersedes all terms and conditions on Lycos' rate cards, and any
previous agreements between Lycos and advertiser/agency.
2. Changes and Cancellations. All artwork must be received at least five days
-------------------------
in advance of publication date. Cancellations or copy changes will not be
accepted after the published closing date of the update to the Lycos site.
Changes to artwork must be received by Lycos at least five days in advance
of requested change date. Lycos' and banner specifications are accessible
through the URL adreporting.lycos.com/specs.html; Lycos reserves the right
to change any of its ad banner specifications at any time. Any
cancellations or change orders must be made in writing and acknowledged by
Lycos. Change orders cannot be submitted any more frequently than once
every fourteen days. This contract may be canceled or changed by Lycos or
advertiser/agency on 30 days written notice to the other party. Lycos may
immediately terminate this contract if any change occurs in any applicable
laws or regulations that would, in Lycos' reasonable opinion, render Lycos'
performance hereunder illegal or otherwise subject to legal challenge.
3. Payment. Unless otherwise agreed in writing, the first month's fees are
-------
due upon the execution of this contract by the advertiser/agency and,
thereafter, pro rata monthly in advance. If payment is not made timely,
Lycos at its option, may immediately terminate the contract. In addition,
advertiser/agency shall be liable to Lycos for all attorney's fees and
other costs of collection. Interest will accrue on any past due amounts at
the rate of one and one-half (1 1/2%) percent per month, but not in excess
of the lawful maximum. Lycos shall have the right to hold the advertiser
and/or its agency or agent jointly and severally liable for all amounts
due.
4. Frequency and Discounts. If Lycos fails to provide the guaranteed number
-----------------------
of impressions, Lycos will make good on this contract by providing
advertiser with additional impressions. Lycos will not make good for under-
delivery due to delays caused by advertiser/agency. Advertiser/agency
understands that all frequency discounts are based on the
advertiser's/agency's commitment to fulfilling the frequency indicated in
the contract. If, for any reason, this frequency is not met by the time of
expiration or cancellation of the contract, advertiser/agency agrees to pay
a short rate charge on all ads run. This charge will be equal to the
difference between the rate shown in the contract and the rate earned based
on the applicable rate card for the actual frequency completed.
1.
<PAGE>
5. Growth and Renewal. (a) Per Impression Contracts. At the expiration of
------------------
a contract for a guaranteed number of impressions, provided the contract is
for a length of time 180 days or longer, advertiser/agency has the right to
enter into a then-standard Lycos Network Advertising Contract for the same
number of impressions for a second contract period identical in duration to
the first. The purchase price for a second contract period will be
determined by Lycos' then-current rate card. (b) Exclusive Key Word/Phrase
Contracts. The estimated number of impressions and the per impression
charge for a contract for the exclusive right to a key word/phrase will be
determined at the time the contract is signed. Advertiser/agency agrees to
pay, on a per impression basis, for any increase in impressions (calculated
on a monthly basis) up to and including twice the number of impressions
estimated at the time the contract is signed. At the termination of a key
word/phrase contract, provided the contract is for a length of time 180
days or longer, advertiser/agency has the right to enter into a then-
standard Lycos Network Advertising Contract for the same key word/phrase
for a second contract period identical in duration to the first. The
purchase price for the second contract period will be determined by Lycos'
then-current rate card. (c) Notice of Renewal. In order to exercise the
right to enter into a second contract, advertiser/agency must notify Lycos
in writing 30 days before the termination date of this contract that the
advertiser/agency is purchasing the same number of impressions or the same
exclusive keyword/phrase for the second contract period. Failure to give
timely notice will result in forfeiture of the right to renew.
6. Licenses and Indemnification. The advertiser/agency represents that the
----------------------------
advertiser is the owner or is licensed to use the entire contents and
subject matter contained in its advertising and collateral information,
including, without limitation, (a) the names and/or pictures of persons;
(b) any copyrighted material, trademarks, service marks, logos, and/or
depictions of trademarked or service marked goods or services; and (c) any
testimonials or endorsements contained in any advertisement submitted to
Lycos. In consideration of Lycos' acceptance of such advertisements and
information for publication, the advertiser and agency will jointly and
severally indemnify and hold Lycos harmless against all loss, liability,
damage and expense of any nature (including attorney's fees) arising out of
Lycos' performance under this contract or the copying, printing,
distributing, or publishing of advertiser's/agency's advertisements. If
advertiser possesses any preexisting copyright interests in the
advertisements, advertiser grants Lycos the right to use, reproduce, and
distribute the advertisements.
7. Key Words and Phrases. Each advertiser may be given a "first right" to its
---------------------
exact company name and trademarks for keyword/phrase advertising. Lycos
may pre-empt an existing key word/phrase advertiser by submitting a three-
month advertising contract. The existing contract-holder for the key
word/phrase will be provided with a two-week notification of preemption and
will receive a pro-rated refund for any unfulfilled number of guaranteed
impressions. If two or more advertisers have the same name or trademark,
the allocation will be on a first-come basis and the existing contract will
take precedence.
8. Rejections. Lycos reserves the right, without liability, to reject, omit
----------
or exclude any advertisement or to reject or terminate any links for any
reason at any time, with or
2.
<PAGE>
without notice to the advertiser/agency, and whether or not such
advertisement or link was previously acknowledged, accepted, or published.
9. Limitation of Liability. Lycos shall not be liable for any errors in
-----------------------
content or omissions. Should an error appear in an advertisement, Lycos'
liability will be limited to the cost of the advertisement (prorated for
the publishing completed). Lycos will not be liable for any delays in
delivery and/or non-delivery in the event of an act of God, action by any
government entity, transportation, strike, network difficulties, electronic
malfunction, etc. or any feasibility, reliability, or effectiveness related
to the Lycos site. Lycos does not represent or warrant that the Lycos site
will meet the objectives or needs of advertiser/agency or any third party.
In no event will Lycos be liable for any failure, disruption, downtime,
interruption, miscalculation, delay, inaccuracy, or any other
nonperformance related to the Lycos site. UNDER NO CIRCUMSTANCES WILL LYCOS
BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING, WITHOUT LIMITATION, FOR LOST INCOME OR PROFITS, IN ANY WAY
ARISING OUT OF OR RELATED TO THIS AGREEMENT, EVEN IF LYCOS HAS BEEN ADVISED
AS TO THE POSSIBILITY OF SUCH DAMAGES.
10. Choice of Law and Forum. This contract shall be interpreted and construed
-----------------------
in accordance with the laws of the Commonwealth of Massachusetts, without
regard to its conflicts of laws provision, and with the same force and
effect as if fully executed and performed therein. Each party hereby
consents to the personal jurisdiction of the Commonwealth of Massachusetts,
acknowledges that venue is proper in any state or Federal court in the
Commonwealth of Massachusetts, agrees that any action related to this
Agreement must be brought in a state or Federal court in the Commonwealth
of Massachusetts, and waives any objection that may exist, now or in the
future, with respect to any of the foregoing.
11. Credit Cards. In the event that advertiser/agency pays any amounts due
------------
hereunder with a credit card and the issuer of the credit card fails to pay
the amounts authorized by advertiser/agency, advertiser/agency shall
immediately remit full payment to Lycos plus any interest due on the
outstanding amounts. In addition, if advertiser/agency pays any amounts due
hereunder with a credit card and the issuer of the credit card seeks to
recover from Lycos any amounts received by Lycos from the issuer,
advertiser/agency shall immediately remit to Lycos all amounts necessary to
comply with the issuer's request and any costs and expenses incurred by
Lycos.
12. Miscellaneous. No public statements concerning the existence or terms of
-------------
this contract will be made or released to any medium except with the prior
approval of both parties or as required by law. This contract cannot be
sold, assigned or transferred by advertiser/agency to any party. If any
portion of the contract is found unenforceable for any reason, the
remainder will remain in full force and effect. No waiver by Lycos shall
operate as a waiver of any other provision or any subsequent default. This
document represents the entire agreement of the parties; Lycos will not be
bound by the representations of any agents, brokers, or other third
parties. Any modifications must be in writing and signed by an authorized
representative of Lycos.
3.
<PAGE>
The undersigned is legally empowered WITH DUE CORPORATE AUTHORITY to enter into
this Contract and agrees to be bound by the Terms and Conditions of this
contract.
ADVERTISER OR AGENT LYCOS, INC.
Signature: /s/ Robert Zakari Signature: /s/ David G. Peterson
------------------------------ --------------------------
Date: 1/29/99 Date: 2/22/99
----------------------------------- -------------------------------
Signature: /s/ C. Nicholas Keating, Jr.
------------------------------
Date: 2/18/99
-----------------------------------
4.
<PAGE>
<TABLE>
<CAPTION>
Offices: SEND ALL PAYMENTS TO:
<S> <C> <C> <C> <C> <C>
New York (212) 549-2100 Philadelphia (610) 701-5779 Lycos, Inc.
San Francisco (415) 281-8721 Los Angeles (310) 914-0195 PO Box 6255
Pittsburgh (412) 208-1000 Atlanta (404) 238-0534 Boston, MA 02212-6255
www.lycos.com Waltham (781) 370-2700 New England (603) 924-4983
- -------------
www.tripod.com Williamstown (413) 458-2615 Mountainview (650) 938-4400
- --------------
www.whowhere.com Chicago (773) 281-8390 Dallas (214) 800-8767
- ----------------
</TABLE>
<TABLE>
LYCOS NETWORK ADVERTISING CONTRACT
<S> <C> <C> <C>
Advertiser: 1-800-US-SEARCH Technical Contact: Melissa DePiero
Address1: Telephone: 310-553-7000
Address2: eMail: [email protected]
Agent/Agency Reporting Contact: Same
Billing Contact Name: Alan Mazursky Telephone:
Billing Address1: 9107 Wilshire Blvd. Ste. 700 eMail:
Billing Address2: Beverly Hills, CA 90210 Online Reporting: http://adreporting.lycos.com
Telephone Number: 310-553-7000 User Name: ussearch
Fax Number: 310-786-8349 Password (8 chars): search99
Advertiser's URL: www.1800ussearch.com
</TABLE>
<TABLE>
<CAPTION>
Date
Target/ Keyword -------------- Gross Gross
Keyword Excl. Res ID Description Start End Impressions CPM Cost Net Cost Net CPM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
[*] 3/1/99 2/29/00 [*] [*] [*]
----------- --------
458,626,402 [*]
(For internal purposes only)
Advertising Contract Split Yes No ADVERTISER/AGENT SIGNATURE___________________________________
Repeat/First time advertiser Repeat First Time LYCOS ACCOUNT MANAGER SIGNATURE______________________________
Technical/Non Technical Tech Non Tech CREDIT CARD NUMBER (AMEX, MC, VISA)_____________EXP.DATE_______
Keyword/Target/Impr/Comb Key Tg Impr Combo
Domestic/International client Dom Intern
Number of brands represented ______________________________
This advertising contract is subject to the attached Terms and Conditions
</TABLE>
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
1.
<PAGE>
<TABLE>
<CAPTION>
Offices: SEND ALL PAYMENTS TO:
<S> <C> <C> <C> <C> <C>
New York (212) 549-2100 Philadelphia (610) 701-5779 Lycos, Inc.
San Francisco (415) 281-8721 Los Angeles (310) 914-0195 PO Box 6255
Pittsburgh (412) 208-1000 Atlanta (404) 238-0534 Boston, MA 02212-6255
www.lycos.com Waltham (781) 370-2700 New England (603) 924-4983
- -------------------
www.tripod.com Williamstown (413) 458-2615 Mountainview (650) 938-4400
- -------------------
www.whowhere.com Chicago (773) 281-8390 Dallas (214) 800-8767
- -------------------
</TABLE>
LYCOS NETWORK ADVERTISING CONTRACT
<TABLE>
<S> <C> <C> <C>
Advertiser: 1-800-US-SEARCH Technical Contact: Melissa DePiero
Address1: Telephone: 310-553-7000
Address2: eMail: [email protected]
Agent/Agency Reporting Contact: Same
Billing Contact Name: Alan Mazursky Telephone:
Billing Address1: 9107 Wilshire Blvd. Ste. 700 eMail:
Billing Address2: Beverly Hills, CA 90210 Online Reporting: http://adreporting.lycos.com
Telephone Number: 310-553-7000 User Name: ussearch
Fax Number: 310-786-8349 Password (8 chars): search99
Advertiser's URL: www.1800ussearch.com
</TABLE>
<TABLE>
<CAPTION>
Target/ Keyword Date Gross Gross
----------------
Keyword Excl. Res ID Description Start End Impressions CPM Cost Net Cost Net CPM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] 2/1/99 2/28/99 [*] [*] [*]
[*] [*] [*] [*] 2/1/99 2/28/99 [*] [*] [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] [*] [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] [*] [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] [*] [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] [*] [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] [*] [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] [*] [*]
---------- -------
[*] [*]
</TABLE>
<TABLE>
<S> <C> <C> <C>
(For internal purposes only)
Advertising Contract Split Yes No ADVERTISER/AGENT SIGNATURE______________________________________
Repeat/First time advertiser Repeat First Time
Technical/Non Technical Tech Non Tech LYCOS ACCOUNT MANAGER SIGNATURE_________________________________
Keyword/Target/Impr/Comb Key Tgt Impr Combo
Domestic/International client Dom Intern CREDIT CARD NUMBER (AMEX, MC, VISA)__________ EXP. DATE_________
Number of brands represented________________
This advertising contract is subject to the attached Terms and Conditions.
</TABLE>
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUIRED WITH RESPECT TO THE
OMITTED PORTIONS.
2.
<PAGE>
<TABLE>
<CAPTION>
Offices: SEND ALL PAYMENTS TO:
<S> <C> <C> <C> <C> <C>
New York (212) 549-2100 Philadelphia (610) 701-5779 Lycos, Inc.
San Francisco (415) 281-8721 Los Angeles (310) 914-0195 PO Box 6255
Pittsburgh (412) 208-1000 Atlanta (404) 238-0534 Boston, MA 02212-6255
www.lycos.com Waltham (781) 370-2700 England (603) 924-4983
- -------------
www.tripod.com Williamstown (413) 458-2615 Mountainview (650) 938-4400
- --------------
www.whowhere.com Chicago (773) 281-8390 Dallas (214) 800-8767
- ----------------
</TABLE>
LYCOS NETWORK ADVERTISING CONTRACT - ATTACHMENT
<TABLE>
<CAPTION>
Target/ Keyword Date Gross Gross Discount
--------------
Keyword Excl. Res ID Description Start End Impressions CPM Cost (if applicable) Net Cost Net CPM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
------------ ---------------------
41,373,598 [*]
</TABLE>
ADVERTISER/AGENT SIGNATURE /s/ Robert Zakari
LYCOS ACCOUNT MANAGER SIGNATURE___________________
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
3.
<PAGE>
EXHIBIT 10.11.1
LYCOS NETWORK ADVERTISING CONTRACT - PAGE 2
TERMS AND CONDITIONS
1. General. A signed contract must be submitted to Lycos five days in advance
-------
of initial publication date. By submitting advertising for inclusion on a
Lycos site, advertiser/agency agrees to be bound by the terms of this
contract. No conditions other than those set forth herein shall be binding
on Lycos unless specifically agreed to in writing by Lycos. Lycos will not
be bound by conditions printed or appearing on order blanks or copy
instructions submitted by or on behalf of the advertiser/agency. This
contract supersedes all terms and conditions on Lycos' rate cards, and any
previous agreements between Lycos and advertiser/agency.
2. Changes and Cancellations. All artwork must be received at least five days
-------------------------
in advance of publication date. Cancellations or copy changes will not be
accepted after the published closing date of the update to the Lycos site.
Changes to artwork must be received by Lycos at least five days in advance
of requested change date. Lycos' and banner specifications are accessible
through the URL adreporting.lycos.com/specs.html; Lycos reserves the right
to change any of its ad banner specifications at any time. Any
cancellations or change orders must be made in writing and acknowledged by
Lycos. Change orders cannot be submitted any more frequently than once
every fourteen days. This contract may be canceled or changed by Lycos or
advertiser/agency on 30 days written notice to the other party. Lycos may
immediately terminate this contract if any change occurs in any applicable
laws or regulations that would, in Lycos' reasonable opinion, render Lycos'
performance hereunder illegal or otherwise subject to legal challenge.
3. Payment. Unless otherwise agreed in writing, the first month's fees are
-------
due upon the execution of this contract by the advertiser/agency and,
thereafter, pro rata monthly in advance. If payment is not made timely,
Lycos at its option, may immediately terminate the contract. In addition,
advertiser/agency shall be liable to Lycos for all attorney's fees and
other costs of collection. Interest will accrue on any past due amounts at
the rate of one and one-half (1 1/2%) percent per month, but not in excess
of the lawful maximum. Lycos shall have the right to hold the advertiser
and/or its agency or agent jointly and severally liable for all amounts
due.
4. Frequency and Discounts. If Lycos fails to provide the guaranteed number
-----------------------
of impressions, Lycos will make good on this contract by providing
advertiser with additional impressions. Lycos will not make good for
under-delivery due to delays caused by advertiser/agency.
Advertiser/agency understands that all frequency discounts are based on the
advertiser's/agency's commitment to fulfilling the frequency indicated in
the contract. If, for any reason, this frequency is not met by the time of
expiration or cancellation of the contract, advertiser/agency agrees to pay
a short rate charge on all ads run. This charge will be equal to the
difference between the rate shown in the contract and the rate earned based
on the applicable rate card for the actual frequency completed.
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1.
<PAGE>
5. Growth and Renewal. (a) Per Impression Contracts. At the expiration of
------------------
a contract for a guaranteed number of impressions, provided the contract is
for a length of time 180 days or longer, advertiser/agency has the right to
enter into a then-standard Lycos Network Advertising Contract for the same
number of impressions for a second contract period identical in duration to
the first. The purchase price for a second contract period will be
determined by Lycos' then-current rate card. (b) Exclusive Key Word/Phrase
Contracts. The estimated number of impressions and the per impression
charge for a contract for the exclusive right to a key word/phrase will be
determined at the time the contract is signed. Advertiser/agency agrees to
pay, on a per impression basis, for any increase in impressions (calculated
on a monthly basis) up to and including twice the number of impressions
estimated at the time the contract is signed. At the termination of a key
word/phrase contract, provided the contract is for a length of time 180
days or longer, advertiser/agency has the right to enter into a then-
standard Lycos Network Advertising Contract for the same key word/phrase
for a second contract period identical in duration to the first. The
purchase price for the second contract period will be determined by Lycos'
then-current rate card. (c) Notice of Renewal. In order to exercise the
right to enter into a second contract, advertiser/agency must notify Lycos
in writing 30 days before the termination date of this contract that the
advertiser/agency is purchasing the same number of impressions or the same
exclusive keyword/phrase for the second contract period. Failure to give
timely notice will result in forfeiture of the right to renew.
6. Licenses and Indemnification. The advertiser/agency represents that the
----------------------------
advertiser is the owner or is licensed to use the entire contents and
subject matter contained in its advertising and collateral information,
including, without limitation, (a) the names and/or pictures of persons;
(b) any copyrighted material, trademarks, service marks, logos, and/or
depictions of trademarked or service marked goods or services; and (c) any
testimonials or endorsements contained in any advertisement submitted to
Lycos. In consideration of Lycos' acceptance of such advertisements and
information for publication, the advertiser and agency will jointly and
severally indemnify and hold Lycos harmless against all loss, liability,
damage and expense of any nature (including attorney's fees) arising out of
Lycos' performance under this contract or the copying, printing,
distributing, or publishing of advertiser's/agency's advertisements. If
advertiser possesses any preexisting copyright interests in the
advertisements, advertiser grants Lycos the right to use, reproduce, and
distribute the advertisements.
7. Key Words and Phrases. Each advertiser may be given a "first right" to its
---------------------
exact company name and trademarks for keyword/phrase advertising. Lycos
may pre-empt an existing key word/phrase advertiser by submitting a three-
month advertising contract. The existing contract-holder for the key
word/phrase will be provided with a two-week notification of preemption and
will receive a pro-rated refund for any unfulfilled number of guaranteed
impressions. If two or more advertisers have the same name or trademark,
the allocation will be on a first-come basis and the existing contract will
take precedence.
8. Rejections. Lycos reserves the right, without liability, to reject, omit
----------
or exclude any advertisement or to reject or terminate any links for any
reason at any time, with or
2.
<PAGE>
without notice to the advertiser/agency, and whether or not such
advertisement or link was previously acknowledged, accepted, or published.
9. Limitation of Liability. Lycos shall not be liable for any errors in
-----------------------
content or omissions. Should an error appear in an advertisement, Lycos'
liability will be limited to the cost of the advertisement (prorated for
the publishing completed). Lycos will not be liable for any delays in
delivery and/or non-delivery in the event of an act of God, action by any
government entity, transportation, strike, network difficulties, electronic
malfunction, etc. or any feasibility, reliability, or effectiveness related
to the Lycos site. Lycos does not represent or warrant that the Lycos site
will meet the objectives or needs of advertiser/agency or any third party.
In no event will Lycos be liable for any failure, disruption, downtime,
interruption, miscalculation, delay, inaccuracy, or any other
nonperformance related to the Lycos site. UNDER NO CIRCUMSTANCES WILL
LYCOS BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, INCLUDING, WITHOUT LIMITATION, FOR LOST INCOME OR PROFITS, IN ANY
WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT, EVEN IF LYCOS HAS BEEN
ADVISED AS TO THE POSSIBILITY OF SUCH DAMAGES.
10. Choice of Law and Forum. This contract shall be interpreted and construed
-----------------------
in accordance with the laws of the Commonwealth of Massachusetts, without
regard to its conflicts of laws provision, and with the same force and
effect as if fully executed and performed therein. Each party hereby
consents to the personal jurisdiction of the Commonwealth of Massachusetts,
acknowledges that venue is proper in any state or Federal court in the
Commonwealth of Massachusetts, agrees that any action related to this
Agreement must be brought in a state or Federal court in the Commonwealth
of Massachusetts, and waives any objection that may exist, now or in the
future, with respect to any of the foregoing.
11. Credit Cards. In the event that advertiser/agency pays any amounts due
------------
hereunder with a credit card and the issuer of the credit card fails to pay
the amounts authorized by advertiser/agency, advertiser/agency shall
immediately remit full payment to Lycos plus any interest due on the
outstanding amounts. In addition, if advertiser/agency pays any amounts
due hereunder with a credit card and the issuer of the credit card seeks to
recover from Lycos any amounts received by Lycos from the issuer,
advertiser/agency shall immediately remit to Lycos all amounts necessary to
comply with the issuer's request and any costs and expenses incurred by
Lycos.
12. Miscellaneous. No public statements concerning the existence or terms of
-------------
this contract will be made or released to any medium except with the prior
approval of both parties or as required by law. This contract cannot be
sold, assigned or transferred by advertiser/agency to any party. If any
portion of the contract is found unenforceable for any reason, the
remainder will remain in full force and effect. No waiver by Lycos shall
operate as a waiver of any other provision or any subsequent default. This
document represents the entire agreement of the parties; Lycos will not be
bound by the representations of any agents, brokers, or other third
parties. Any modifications must be in writing and signed by an authorized
representative of Lycos.
3.
<PAGE>
The undersigned is legally empowered WITH DUE CORPORATE AUTHORITY to enter into
this Contract and agrees to be bound by the Terms and Conditions of this
contract.
ADVERTISER OR AGENT LYCOS, INC.
Signature: /s/ Robert Zakari Signature: /s/ David G. Peterson
-------------------------- -----------------------------
Date: 1/29/99 Date: 2/22/99
------------------------------- ----------------------------------
Signature: /s/ C. Nicholas Keating, Jr.
--------------------------
Date: 2/18/99
-------------------------------
4.
<PAGE>
<TABLE>
<CAPTION>
Offices: SEND ALL PAYMENTS TO:
<S> <C> <C> <C>
New York (212) 549-2100 Philadelphia (610) 701-5779 Lycos, Inc.
San Francisco (415) 281-8721 Los Angeles (310) 914-0195 PO Box 6255
Pittsburgh (412) 208-1000 Atlanta (404) 238-0534 Boston, MA 02212-6255
www.lycos.com Waltham (781) 370-2700 New England (603) 924-4983
- -------------
www.tripod.com Williamstown (413) 458-2615 Mountainview (650) 938-4400
- --------------
www.whowhere.com Chicago (773) 281-8390 Dallas (214) 800-8767
- ----------------
</TABLE>
LYCOS NETWORK ADVERTISING CONTRACT
<TABLE>
<S> <C> <C> <C>
Advertiser: 1-800-US-SEARCH Technical Contact: Melissa DePiero
Address1: Telephone: 310-553-7000
Address2: eMail: [email protected]
Agent/Agency Reporting Contact: Same
Billing Contact Name: Alan Mazursky Telephone:
Billing Address1: 9107 Wilshire Blvd. Ste. 700 eMail:
Billing Address2: Beverly Hills, CA 90210 Online Reporting: http://adreporting.lycos.com
Telephone Number: 310-553-7000 User Name: ussearch
Fax Number: 310-786-8349 Password (8 chars): search99
Advertiser's URL: www.1800ussearch.com
</TABLE>
<TABLE>
<CAPTION>
Target/ Keyword Date Gross Gross Discount
---------------------
Keyword Excl. Res ID Description Start End Impressions CPM Cost (if applicable) Net Cost Net CPM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 3/1/99 2/29/00 [*] [*] $ [*]
------------ -------------
458,626,402 [*]
</TABLE>
<TABLE>
<S> <C> <C> <C>
(For internal purposes only)
Advertising Contract Split Yes No ADVERTISER/AGENT SIGNATURE /s/ Robert Zakari
--------------------------------------------
Repeat/First time advertiser Repeat First Time
Technical/Non Technical Tech Non Tech LYCOS ACCOUNT MANAGER SIGNATURE________________________________________
Keyword/Target/Impr/Comb Key Tgt Impr Combo
Domestic/International client Dom Intern CREDIT CARD NUMBER (AMEX, MC, VISA)_________________ EXP. DATE________
Number of brands represented _____________________________
This advertising contract is subject to the attached Terms and Conditions
</TABLE>
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
1.
<PAGE>
<TABLE>
<CAPTION>
Offices: SEND ALL PAYMENTS TO:
<S> <C> <C> <C>
New York (212) 549-2100 Philadelphia (610) 701-5779 Lycos, Inc.
San Francisco (415) 281-8721 Los Angeles (310) 914-0195 PO Box 6255
Pittsburgh (412) 208-1000 Atlanta (404) 238-0534 Boston, MA 02212-6255
www.lycos.com Waltham (781) 370-2700 New England (603) 924-4983
- -------------
www.tripod.com Williamstown (413) 458-2615 Mountainview (650) 938-4400
- --------------
www.whowhere.com Chicago (773) 281-8390 Dallas (214) 800-8767
- ----------------
</TABLE>
LYCOS NETWORK ADVERTISING CONTRACT
<TABLE>
<S> <C> <C> <C>
Advertiser: 1-800-US-SEARCH Technical Contact: Melissa DePiero
Address1: Telephone: 310-553-7000
Address2: eMail: [email protected]
Agent/Agency Reporting Contact: Same
Billing Contact Name: Alan Mazursky Telephone:
Billing Address1: 9107 Wilshire Blvd. Ste. 700 eMail:
Billing Address2: Beverly Hills, CA 90210 Online Reporting: http://adreporting.lycos.com
Telephone Number: 310-553-7000 User Name: ussearch
Fax Number: 310-786-8349 Password (8 chars): search99
Advertiser's URL: www.1800ussearch.com
</TABLE>
<TABLE>
<CAPTION>
Target/ Keyword Date Gross Gross Discount
--------------------
Keyword Excl. Res ID Description Start End Impressions CPM Cost (if applicable) Net Cost Net CPM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] 2/1/99 2/28/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 2/1/99 2/28/00 [*] $ [*] $ [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] $ [*] $ [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] $ [*] $ [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] $ [*] $ [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] $ [*] $ [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] $ [*] $ [*]
[*] [*] [*] [*] 2/4/99 2/28/99 [*] $ [*] $ [*]
----------- ----------
[*] [*]
</TABLE>
<TABLE>
<S> <C> <C> <C>
(For internal purposes only)
Advertising Contract Split Yes No ADVERTISER/AGENT SIGNATURE_____________________________________________
Repeat/First time advertiser Repeat First Time
Technical/Non Technical Tech Non Tech LYCOS ACCOUNT MANAGER SIGNATURE________________________________________
Keyword/Target/Impr/Comb Key Tgt Impr Combo
Domestic/International client Dom Intern CREDIT CARD NUMBER (AMEX, MC, VISA)_________________ EXP. DATE________
Number of brands represented _____________________________
This advertising contract is subject to the attached Terms and Conditions
</TABLE>
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2.
<PAGE>
<TABLE>
<CAPTION>
Offices: SEND ALL PAYMENTS TO:
<S> <C> <C> <C>
New York (212) 549-2100 Philadelphia (610) 701-5779 Lycos, Inc.
San Francisco (415) 281-8721 Los Angeles (310) 914-0195 PO Box 6255
Pittsburgh (412) 208-1000 Atlanta (404) 238-0534 Boston, MA 02212-6255
www.lycos.com Waltham (781) 370-2700 New England (603) 924-4983
- -------------
www.tripod.com Williamstown (413) 458-2615 Mountainview (650) 938-4400
- --------------
www.whowhere.com Chicago (773) 281-8390 Dallas (214) 800-8767
- ----------------
</TABLE>
LYCOS NETWORK ADVERTISING CONTRACT - ATTACHMENT
<TABLE>
<CAPTION>
Target/ Keyword Date Gross Gross Discount
-------------------
Keyword Excl. Res ID Description Start End Impressions CPM Cost (if applicable) Net Cost Net CPM
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
[*] [*] [*] 3/1/99 2/29/00 [*] [*] [*]
----------- ------------
41,373,598 [*]
</TABLE>
ADVERTISER/AGENT SIGNATURE__________________________________________
LYCOS ACCOUNT MANAGER SIGNATURE_____________________________________
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
3.
<PAGE>
EXHIBIT 10.12
AMENDED AND RESTATED CONTENT PROVIDER AGREEMENT
THIS AMENDED AND RESTATED CONTENT PROVIDER AGREEMENT (the "Agreement")
supercedes any and all agreements relating to a Content Provider Agreement or
Internet Joint Marketing Agreement between the parties mentioned below. This
Agreement is made as of August 24, 1998, effective as of April 25, 1998 (the
"Effective Date"), by and among INFOSPACE, INC., ("INFOSPACE"), a Delaware
corporation having a principal place of business at 15375 90th Ave. NE, Redmond,
WA 98052, 800-U.S. SEARCH, Inc. ("SEARCH"), a California corporation, with
offices at 9107 Wilshire Blvd., Suite 700, Beverly Hills, CA 90210 and The
Kushner-Locke Company ("PARENT"), a California corporation, with offices at
11601 Wilshire Blvd., 21st Floor, Los Angeles, CA 90025.
WHEREAS, INFOSPACE provides information and other content in various media to
end users via several sites on the World Wide Web (the "Web") and other
electronic media environments;
WHEREAS, SEARCH supplies public record information and other related
capabilities via the Web;
WHEREAS, SEARCH is a subsidiary of PARENT, and PARENT is willing to guarantee
SEARCH's obligations under this Agreement; and
WHEREAS, SEARCH desires, and INFOSPACE agrees to enter into an agreement whereby
SEARCH's content and functionality will be integrated into a Web site branded in
accordance with INFOSPACE's "look and feel" and located at
http://www.infospace.com (the "INFOSPACE Site") and distributed on certain areas
- ------------------------
of the INFOSPACE Network (as defined below).
NOW THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
The following terms shall have the following meanings for the purpose of this
Agreement:
1.1 "SEARCH CONTENT" means the text, pictures, graphics, sound, video,
other data, functionality, computer software and code to be provided by SEARCH.
1.2 "SEARCH MARKS" means the SEARCH logos and trademarks to be provided
to INFOSPACE in accordance with this Agreement.
1.3 "INFOSPACE MARKS" means the INFOSPACE logos and trademarks to be
provided to SEARCH in accordance with this Agreement.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1.
<PAGE>
1.4 "INFOSPACE NETWORK" means the WebSites that deliver INFOSPACE's
content services, including the INFOSPACE Site, other Web Sites owned by
INFOSPACE and the co-branded Web sites of the affiliates with whom INFOSPACE has
distribution arrangements.
2. OBLIGATIONS
2.1 INFOSPACE'S OBLIGATIONS
2.1.1 INFOSPACE will fully integrate SEARCH Content into the
INFOSPACE Site in such a manner that the search service will be built into the
INFOSPACE Site and offered as a co-branded service. There will be a mutually
agreed upon heading built into the INFOSPACE Site homepage and 5 mutually agreed
upon subheadings listed underneath. Each will link to the appropriate service,
all of which is a part of the INFOSPACE Site.
2.1.2 INFOSPACE will integrate a link and description to the SEARCH
chat room from the INFOSPACE Site Chat area.
2.1.3 INFOSPACE will integrate the SEARCH background check service
into appropriate areas within the INFOSPACE Site personals and employment
sections in the classifieds.
2.1.4 INFOSPACE will integrate SEARCH Content into PARENT.COM.
2.1.5 INFOSPACE will provide SEARCH with a minimum of [*] million
banner impressions per month anywhere within the INFOSPACE Network whitepages
("WHITEPAGE BANNERS").
2.1.6 INFOSPACE will provide a button sponsorship to SEARCH on every
page within the whitepages located within the INFOSPACE Site and on selected
pages throughout the INFOSPACE Network ("WHITEPAGE BUTTONS"). INFOSPACE will
guarantee that the WHITEPAGE BUTTONS will receive a minimum of [*] million
impressions per month anywhere within the INFOSPACE Network.
2.1.7 INFOSPACE will provide a button sponsorship to SEARCH on every
non-whitepages page located within the INFOSPACE Site and on selected pages
throughout the INFOSPACE Network ("STANDARD BUTTONS"). INFOSPACE will guarantee
that the STANDARD BUTTONS will receive a minimum of [*] million impressions per
month anywhere within the INFOSPACE Network.
2.1.8 INFOSPACE will lace a text link on the INFOSPACE navigation
bar located within the INFOSPACE Site and on selected pages throughout the
INFOSPACE Network
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2.
<PAGE>
("TEXT LINK"). INFOSPACE will guarantee that the TEXT LINK will receive a
minimum of [*] million impressions anywhere within the INFOSPACE Network.
2.1.9 INFOSPACE maintains the right to sell banner and sponsorship
advertising on all pages that contain SEARCH Content that is built into the
INFOSPACE Site, as an INFOSPACE service, and will keep [*] of the revenue
from, such Advertising.
2.2 SEARCH'S OBLIGATIONS.
2.2.1 SEARCH shall make the SEARCH Content available to INFOSPACE
via electronic transfer or by other automated means to be mutually agreed on by
the parties.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
2.2.2 SEARCH shall provide all payments in a timely manner as
defined in Section 3.
2.2.3 SEARCH will not include any INFOSPACE competitors, as defined
by INFOSPACE, in any of its advertising for the duration of this Agreement.
SEARCH agrees to use its best efforts to include INFOSPACE in its television and
print advertising by the second quarter of 1998 and continuing for the duration
of this Agreement.
3. REMUNERATION
3.1 1998 PROMOTION AND DISTRIBUTION FEES. SEARCH will pay to INFOSPACE for
promotion and distribution of the SEARCH Content, during the first eight months
of this Agreement, the following [*] fees:
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
During this time period, the CPM rates set forth in section 3.2 below shall be
imputed for purposes of the parties' internal accounting procedures as
necessary.
INFOSPACE agrees to allow SEARCH to defer payment of $[*] per month from the
months of June through November of 1998. This deferred payment of $[*] will be
made by SEARCH over the first 6 months of 1999 with a payment of $[*] per month.
This payment is in addition to the regular fees as described in 3.2.
3.2 ON-GOING PROMOTION AND DISTRIBUTION' FEES. After the first eight
months of this Agreement (beginning in January 1999), SEARCH will pay to
INFOSPACE, for
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
3.
<PAGE>
promotions and distribution of the SEARCH Content, the following fees based on
exposure levels:
FLAT INTEGRATION FEE of $[*]
WHITEPAGE BANNER at a CPM of $[*] for non-linking banner and $[*] for linking
banners.
WHITEPAGE BUTTONS at a CPM of $[*].
STANDARD BUTTONS at a CPM of $[*].
TEXT LINKS at a CPM of $[*].
Beginning January 1999, the minimum monthly fee will be $[*].
3.3 REPORTS AND PAYMENT. Within ninety (90) days following the end of each
of July and August 1998 and within sixty (60) days following the end of each
month thereafter, SEARCH shall render payment in full of all fees due.
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
3.4 TAXES. All fees and payments stated herein exclude, and SEARCH shall
pay, any sales, use, property, license, value added, withholding, excise or
similar tax, federal, state or local, related to the parties' performance of its
obligations or exercise of its rights under this Agreement and any related
duties, tariffs, imposts and similar charges.
3.5 RECORDS. Each party shall keep reasonable records in connection with
its respective performance under this Agreement and shall permit the other party
reasonable access to such records at such other party's expense upon reasonable
notice.
3.6 GUARANTEE. Until the earlier of December 31, 1999 or the date of
effectiveness of a registration statement for SEARCH'S initial public offering,
if any, in the event that SEARCH fails to comply with Sections 3.1 through 3.4
above, PARENT shall guarantee to INFOSPACE the payment of all amounts due
thereunder within 10 days of the payment dates set forth in Section 3.3. In the
event that any such payment is not timely made by SEARCH as aforesaid, INFOSPACE
shall give notice to SEARCH and SEARCH shall make such payment within ten days.
In the event SEARCH fails to do so, INFOSPACE may give notice to Parent so
stating and Parent shall make such payment within ten days thereafter, provided
that Parent shall be entitled to assert any offsets, claims, or defenses to
which SEARCH may be entitled in connection therewith.
[*]= CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
4.
<PAGE>
4. PROPRIETARY RIGHTS AND LICENSE.
4.1 LICENSE GRANT. SEARCH hereby grants to INFOSPACE for the term of this
Agreement, a non-exclusive, worldwide license to electronically reproduce,
electronically distribute, create derivative works of, publicly perform,
publicly display and digitally perform SEARCH Content in connection with the
parties' objectives hereunder. INFOSPACE hereby grants to SEARCH, for the term
of this Agreement, a non-exclusive, nontransferable, royalty-free, worldwide
license to use INFOSPACE's Marks for the purposes of marketing, promotion, and
content directories or indexes, and in electronic or printed advertising,
publicity, press releases, newsletters and mailings about SEARCH.
4.2 OWNERSHIP OF SEARCH CONTENT AND SEARCH MARKS. All right, title and
interest in and to the SEARCH Content and SEARCH Marks as well as intellectual
property rights (including without limitation all rights therein under
copyright, trademark, trade secret and similar laws) shall remain with SEARCH or
its licensors and/or suppliers. Notwithstanding the foregoing, SEARCH hereby
grants to INFOSPACE a non-exclusive, nontransferable, royalty-free, worldwide
license to use SEARCH Marks in the INFOSPACE Site and for the purposes of
marketing, promotion, and content directories or indexes, and in electronic or
printed advertising, publicity, press releases, newsletters and mailings about
the INFOSPACE Site. Further, any information collected from providing the
classified Apartment service will be owned and controlled by INFOSPACE.
4.3 OWNERSHIP OF INFOSPACE MARKS. All right, title and interest in and to
the INFOSPACE Marks as well as intellectual property rights (including without
limitation all rights therein under trademark and similar laws) shall remain
with INFOSPACE or its licensors and/or suppliers. Notwithstanding the
foregoing, INFOSPACE hereby grants to SEARCH a non-exclusive, nontransferable,
royalty-free, worldwide license to use INFOSPACE Marks for the purposes of
marketing, promotion, and content directories or indexes, and in electronic or
printed advertising, publicity, press releases, newsletters and mailings.
4.4 QUALITY CONTROL AND USE RESTRICTIONS BY SEARCH. SEARCH shall use the
INFOSPACE Marks in accordance with any written instructions provided by
INFOSPACE. SEARCH acknowledges that SEARCH's use of the INFOSPACE Marks will
not create in it, nor will it represent it has, any right, tide or interest in
or to the INFOSPACE Marks other than the license granted by INFOSPACE above.
SEARCH will not challenge the validity of or attempt to register any of the
INFOSPACE Marks or its interest therein as a licensee. SEARCH acknowledges
INFOSPACE's and its affiliates' ownership and exclusive right to use the
INFOSPACE Marks and agrees that all goodwill arising as a result of the use of
the INFOSPACE Marks shall inure to the benefit of INFOSPACE and its affiliates.
4.5 QUALITY CONTROL AND USE RESTRICTIONS BY INFOSPACE. INFOSPACE shall
use the SEARCH Marks in accordance with any written instructions provided by
SEARCH. INFOSPACE acknowledges that INFOSPACE's use of the SEARCH Marks will
not create in
5.
<PAGE>
it, nor will it represent it has, any right, title or interest in or to the
SEARCH Marks other than the license granted by SEARCH above. INFOSPACE will not
challenge the validity of or attempt to register any of the SEARCH Marks or its
interest therein as a licensee. INFOSPACE acknowledges SEARCH's and its
affiliates' ownership and exclusive right to use the SEARCH Marks and agrees
that all goodwill arising as a result of the use of the SEARCH Marks shall inure
to the benefit of SEARCH and its affiliates.
4.6 SEARCH NON-EXCLUSIVITY. The parties agree and acknowledge that
nothing in this Agreement shall be deemed or construed to prohibit SEARCH from
providing the SEARCH Content to any other third party.
4.7 INFOSPACE EXCLUSIVITY. During the term of this Agreement, INFOSPACE
will not run advertising on the INFOSPACE Site from any of SEARCH's competitors
where competitor is defined as any company who provides a pay-for people
locating service including but not limited to the companies listed on Exhibit B.
The list on Exhibit B may be amended by mutual agreement of the parties to this
Agreement. Notwithstanding the foregoing, INFOSPACE shall not provide such
exclusivity to SEARCH on other sites in the INFOSPACE Network, other than on the
INFOSPACE Site, including, but not limited to, Netscape and AOL. During the
Term, the parties agree to discuss the possibility of including co-branded sites
in such exclusivity.
5. LIMITED WARRANTY.
5.1 REGARDING SERVICES. SEARCH provides the SEARCH Content as is and all
services performed hereunder "AS IS" and without any warranty of any kind.
SEARCH does not guarantee continuous or uninterrupted display or distribution of
the services.
5.2 NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 5, EACH
PARTY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
6. INDEMNITY.
6.1 INDEMNITY BY INFOSPACE. INFOSPACE shall indemnify and hold harmless
SEARCH and its affiliates and suppliers against all claims, losses, damages,
liabilities, costs and expenses, including reasonable attorneys' fees, which
SEARCH and its affiliates and suppliers may incur as a result of any claims
relating to the infringement by the INFOSPACE Marks of any third party
trademark.
6.2 SEARCH'S INDEMNITY. SEARCH shall indemnify and hold harmless INFOSPACE
and its affiliates and suppliers against all claims, losses, damages,
liabilities, costs and expenses, including reasonable attorneys' fees, which
INFOSPACE and its affiliates and
6.
<PAGE>
suppliers may incur as a result of claims relating to the infringement by the
SEARCH Content or the SEARCH Marks of any third party copyright, trademark or
trade secret.
6.3 MECHANICS OF INDEMNITY. The party seeking indemnification (the
"Indemnified Party") shall: (a) give the proposed indemnifier (the "Indemnifying
Party") notice of the relevant claim, (b) cooperate with the Indemnifying Party,
at the Indemnifying Party's expense, in the defense of such claim, and (c) give
the Indemnifying Party the right to control the defense and settlement of any
such claim, except that the Indemnifying Party shall not enter into any
settlement that affects the Indemnified Party's rights or interest without the
Indemnified Party's prior written approval. The Indemnified Party shall have the
right to participate in the defense at its expense.
7. LIMITATION OF LIABILITY.
EXCEPT WITH RESPECT TO ANY LIABILITY OF EITHER PARTY TO THE OTHER PARTY
ARISING UNDER SECTION 6 HEREUNDER: IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
LOSS OF PROFITS, REVENUES OR DATA, OR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR EXEMPLARY DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES, NOR SHALL EITHER PARTY'S LIABILITY UNDER THIS AGREEMENT EXCEED THE
AMOUNTS ACTUALLY PAID BY SEARCH TO INFOSPACE HEREUNDER.
8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall expire four (4) years following the first
date on which the SEARCH Content is available on the INFOSPACE Site. After this
Agreement expires, SEARCH will have first right of re-negotiation.
8.2 TERMINATION. Except as provided below, neither party may terminate
Agreement, prior to the end of the Term, unless (a) there is a material breach
of the obligations defined herein that is not cured after 30 days from the
receipt of written notification of such breach; (b) either party files for
bankruptcy protection; or (c) either party is indicted for any criminal
activity. Upon the effective date of expiration or termination, all obligations
defined herein expire except the obligations set forth in Section 6 and SEARCH's
obligation to pay in full all amounts due under Section 3, including but not
limited to the deferred payment of $[*].
9. GENERAL PROVISIONS.
9.1 GOVERNING LAW. This Agreement will be governed and construed in
accordance with the laws of the State of Washington without giving effect its
conflict of law principles.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMMITTED PORTIONS.
7.
<PAGE>
9.2 COMPLIANCE WITH LAWS. At their own expense, SEARCH and INFOSPACE shall
comply with all applicable laws, regulations, rules, ordinances and orders
regarding their respective activities related to this Agreement.
9.3 SEVERABILITY; HEADINGS. If any provision of this Agreement is held to
be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated in any way. The
parties agree to replace any invalid provision with a valid provision, which
most closely approximates the intent and economic effect of the invalid
provision. Headings are for reference purposes only and in no way define, limit,
construe or describe the scope or extent of such section, or in any way affect
this Agreement.
9.4 INDEPENDENT CONTRACTORS. The parties to this Agreement are independent
contractors, and no agency, partnership, joint venture or employee-employer
relationship is intended or created by this Agreement. Neither party may take
any actions, which are binding, on the other party. Without limiting the
foregoing, SEARCH shall not make any representations or warranties to third
parties on behalf of INFOSPACE.
9.5 NOTICE. Any notices required or permitted hereunder shall be given to
the appropriate party at the address specified above or at such other address as
the party shall specify in writing. Unless otherwise specified, such notice
shall be deemed given: upon personal delivery; if sent by fax, upon confirmation
of receipt; or if sent by certified or registered mail, postage prepaid, three
(3) days after the date of mailing.
9.6 ENTIRE AGREEMENT; WAIVER. This Agreement and the Exhibits attached
hereto set forth the entire understanding and agreement of the parties, and
supersede any and all prior or contemporaneous oral or written agreements or
understandings between the parties, as to the subject matter of this Agreement.
In the event of any conflict between the Agreement and an Exhibit, the terms of
the Exhibit shall control. Except as provided herein, only writing signed by
both parties may change this Agreement. Waiver by either party of a breach of
any provision contained herein must be in writing, and no such waiver shall be
construed as a waiver of any succeeding breach of such provision or a waiver of
the provision itself.
8.
<PAGE>
9.7 ASSIGNMENT AND TRANSFER OF CONTROL. INFOSPACE may assign this
Agreement, upon notice to SEARCH, to its parent corporation, or to any wholly or
partially owned domestic or foreign subsidiary or joint venture thereof provided
that the assignee assumes and agrees in writing to perform all of INFOSPACE's
executory obligations and INFOSPACE guarantees performance by the assignee
throughout the Term. In, addition, INFOSPACE may, upon notice to SEARCH, assign
its rights under this Agreement to any entity acquiring all or substantially all
of the assets of the INFOSPACE. Notwithstanding the above provision, in no event
may INFOSPACE assign this Agreement to any direct competitors of SEARCH without
SEARCH's prior written consent. SEARCH may assign this Agreement, in whole or in
part, to any of its Affiliates, defined as Web sites and Web appliance companies
to whom INFOSPACE licenses its content, provided such Affiliate assumes and
agrees to perform all of SEARCH's obligations throughout the Term.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed to be one instrument.
INFOSPACE: SEARCH:
By: /s/ Naveen Jain By: /s/ Nicholas Matzorkis
---------------------------- ____________________________
Title:_________________________ Title: President / COO
_________________________
Date:__________________________ Date:__________________________
PARENT:
By: /s/ Peter Locke
____________________________
Title: Co-Chairman
_________________________
Date:__________________________
9.
<PAGE>
EXHIBIT A
1. CONTENT AND FUNCTIONALITY TO BE PROVIDED.
SEARCH will provide the following Content and Functionality:
TO BE ADDED
EXHIBIT B
TO BE PROVIDED BY SEARCH.
10.
<PAGE>
EXHIBIT 10.13
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is made and entered into as of
September 14, 1998, by and among THE KUSHNER-LOCKE COMPANY ("Kushner-Locke"), a
California corporation, NICHOLAS MATZORKIS ("Matzorkis") and 800-U.S. SEARCH, a
California corporation (the "Company").
WHEREAS, the parties have had various discussions between them in an
attempt to resolve certain issues between Matzorkis and the Company and/or
Kushner-Locke;
WHEREAS, the parties entered into that certain term sheet, dated as of
September 14, 1998 (the "Term Sheet"); and
WHEREAS, pursuant to the terms of the Term Sheet, the parties now desire to
set forth this agreement with respect to the matters set forth therein.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and for other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereby agree as
follows:
1. ANCILLARY AGREEMENTS. Matzorkis and Kushner-Locke have simultaneously
herewith entered into a shareholders' agreement, dated as of September 14, 1998,
a copy of which is attached hereto as Exhibit A (the "Shareholders' Agreement").
Matzorkis and the Company have simultaneously herewith entered into the Amended
and Restated Employment Agreement, dated as of September 14, 1998, a copy of
which is attached hereto as Exhibit B (the "Amended and Restated Employment
Agreement"). Kushner-Locke and the Company have entered into the Administrative
Services Agreement, dated as of July 1, 1998, a copy of which is attached hereto
as Exhibit C (the "Administrative Services Agreement").
2. TRANSFER OF SHARES. Matzorkis hereby agrees that as soon as reasonably
practicable, but in no event later than March 9, 1999, he shall transfer all of
his shares of Common Stock, no par value, of the Company (the "Common Stock"),
and all options, warrants or other rights to acquire shares of Common Stock and
any security exchangeable for, or convertible into, Common Stock, owned or
controlled, directly or indirectly, by Matzorkis, as of this date hereof or
hereafter acquired by Matzorkis into an irrevocable trust for the sole benefit
of his family members (other than Matzorkis) and/or Susan Hanle (the "Trust").
The Trust shall be managed by an independent trustee which is not Matzorkis, a
relative or family member of either Matzorkis or his spouse or an entity which
controls, is controlled by or is under common control with any of the foregoing.
The initial trustee shall be initially designated by Matzorkis.
3. COMPANY ASSUMPTION OF OBLIGATION. The Company will assume upon the
transfer by Matzorkis of his shares of Common Stock to the Trust the obligations
of Matzorkis under that certain Promissory Note by and between Matzorkis and
Keith Davis, dated as of June 25, 1998, in the original principal amount of
$296,000, a copy of which is attached hereto as Exhibit D (the "Promissory
Note"). The Company hereby waives any subrogation rights against Matzorkis it
may have under the Promissory Note.
1.
<PAGE>
4. AMORTIZATION OF OBLIGATIONS. The Company shall continue to amortize the
approximately $45,000 of outstanding loans (the "Loan"), as of the date hereof,
owed by the Company to Matzorkis. Such Loan shall be amortized and paid to
Matzorkis at a rate of $ 1,100 per month and shall bear no interest. Matzorkis
shall forbear from any action to collect payment of such Loan without the
Company's prior written consent.
5. ASSIGNMENT OF RIGHTS. Matzorkis hereby assigns the copyright and any and
all other rights, if any, in and to the lyrics, music and composition titled
"Reuniting, America" (the "Song") to the Company except that Matzorkis shall
retain the right to collect artist royalties, if any, payable by any royalty
collection society in connection with the Song. Within five days of the
execution and delivery of this Agreement by the parties hereto, the Company
agrees to pay Matzorkis $10,000 in respect of the assignment set forth in this
Section 5.
6. VOICE-OVER SERVICES. Beginning as of the date of execution hereof,
Matzorkis shall not be required to provide voice-over services to the Company
except to the extent the Company agrees to compensate Matzorkis for such
services in a manner commensurate with amounts which would be payable to other
non-celebrities providing such voice-over services in an arm's length
transaction.
7. RETENTION OF OBLIGATIONS. Matzorkis agrees to retain all obligations, if
any, to pay any and all fees and/or expenses of Averil Associates ("Averil") and
will hold harmless the Company and all of its Affiliates (as defined below) of
any of the foregoing with respect to any and all claims made by or on behalf of
Averil.
8. REIMBURSEMENT OF EXPENSES. The Company agrees to reimburse Matzorkis for
reasonable actual out-of-pocket legal expenses arising out of or in connection
with the matters set forth in the Term Sheet up to a maximum of $20,000.
9. INITIAL PUBLIC OFFERING.
(A) REGISTRATION. If the Company at any time proposes after the date
hereof to effect a Registration (as defined below) of shares of Common Stock, it
will give prompt written notice on or prior to the date thirty (30) days before
the initial filing with the Securities and Exchange Commission (a "Notice of
Registration") to the Trust of the Company's intention to do so and of the
Trust's rights under this Section 9. Upon the written request of the Trust made
within twenty (20) calendar days after receipt of a Notice of Registration
(which request shall specify the number of shares of Common Stock (the
"Requested Trust Shares") the Trust agrees to sell in such Registration), the
Company and Kushner-Locke will use their reasonable best efforts to include in
the registration statement relating to such Registration (the "Registration
Statement") all Requested Trust Shares. Notwithstanding the foregoing, if, at
any time after giving a Notice of Registration and prior to the effective date
of the applicable Registration Statement, the Company shall determine for any
reason not to register or to delay registration of such shares of Common Stock,
the Company may, at its election, give written notice of such determination to
the Trust and, thereupon, (i) in the case of a determination not to register,
shall be relieved of its obligation to register any Requested Trust Shares, and
(ii) in the case of a determination to delay such registration, shall be
permitted to delay registering any or all Requested Trust Shares for the same
period as the delay in the registration of such other shares of Common Stock.
2.
<PAGE>
(B) PRIORITY IN CUTBACK REGISTRATIONS.
(I) If a Registration becomes a Cutback Registration (as defined
below), the Company shall include in such Registration the amount of Common
Stock of the Company which the Managing Underwriter (as defined below) advises
the Company can be sold in such offering, in the following order of priority:
(a) first, the Common Stock proposed by the Company to be sold for its own
account, (b) second, the Common Stock requested to be included in such
Registration by holders thereof who acquired such shares of Common Stock in, or
in connection with, a private placement by the Company and the terms of such
private placement require such Registration (without cutback) if so requested,
and (c) third, the Common Stock requested to be included in such Registration by
each of Kushner-Locke and the Trust up to, but not exceeding, (1) in the case of
Kushner-Locke, 80%, and (2) in the case of the Trust, 20%, of the balance of the
Common Stock which the Managing Underwriter advises the Company can be sold in
such offering; provided, however, that if the Managing Underwriter advises the
Company in writing that the registration of shares of Common Stock beneficially
owned by the Trust will have a material adverse effect on such Registration,
then the Trust shall not include any shares of Common Stock in such
Registration. Any securities so excluded shall be withdrawn from and shall not
be included in any such Registration.
(II) If the Company at any time proposes to register its Common Stock
in a Registration and such shares of Common Stock are to be distributed by or
through one or more underwriters, the Company will use its reasonable best
efforts, if requested by either Kushner-Locke or the Trust (each a "Selling
Shareholder"), to arrange, subject to the proviso in Section 9(b)(i) above, for
such underwriters to include such shares of Common Stock to be offered and sold
by such Selling Shareholders among the shares of Common Stock to be distributed
by such underwriters, and such Selling Shareholders shall be obligated to sell
such shares of Common Stock in such Registration through such underwriters on
the same terms and conditions as apply to the other shares of Common Stock to be
sold by such underwriters in connection with such Registration. The Selling
Shareholders shall, if requested by the Company or the Managing Underwriter, be
parties to the underwriting agreement between the Company and such underwriter
or underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters also be made to and for such
Selling Shareholders' benefit and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement also be
conditions precedent to such Selling Shareholders' obligations. The Selling
Shareholders shall be required to make representations and warranties regarding
such Selling Shareholder and its ownership of the shares of Common Stock being
registered on its behalf and such Selling Shareholder's intended method of
distribution and any other representation required by law or reasonably required
by the Managing Underwriter. No Selling Shareholder may participate in such
underwritten offering unless such Selling Shareholder agrees to sell its
securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement;
provided that any indemnity obligation of a Selling Shareholder shall be limited
to the net proceeds received by such Selling Shareholder. If any Selling
Shareholder disapproves of the terms of an underwriting, such Selling
Shareholder may elect to withdraw all of its shares therefrom and from such
Registration by notice to the Company and the Managing Underwriter, and upon the
written consent of the Managing
3.
<PAGE>
Underwriter, the remaining Selling Shareholder shall be entitled to increase the
number of shares of Common Stock being registered to the extent of the shares of
Common Stock so withdrawn.
(III) Upon the request of the Managing Underwriter, each of Kushner-
Locke and the Trust shall enter into substantially similar agreements in form
and substance reasonably satisfactory to such Managing Underwriter whereby they
each agree not to effect any public sale or distribution (including a sale under
Rule 144) of shares of Common Stock owned by such shareholder, or any securities
convertible into or exchangeable or exercisable for such shares of Common Stock,
during a period of up to one hundred eighty (180) days after the effective date
of any Registration Statement in connection with a Registration distributed by
or through one or more underwriters (or in any case for such shorter period of
time as is sufficient and appropriate, in the opinion of the Managing
Underwriter, in order to complete the sale and distribution of the Common Stock
included in such Registration), except as part of and pursuant to such
Registration Statement, whether or not such shareholder participates in such
Registration.
(IV) "Cutback Registration" means any Registration in which the
Managing Underwriter with respect thereto advises the Company and the Selling
Shareholder in writing that, in its opinion, the number of shares of Common
Stock requested to be included in such Registration exceeds the number which can
be sold in such offering without a reduction in the selling price anticipated to
be received for the Common Stock to be sold in such public offering.
(V) "Managing Underwriter" means, with respect to any public
offering, the lead managing underwriter for such public offering.
(VI) "Registration" means any registration of an initial public
offering of the Common Stock under the Securities Act of 1933, as amended, for
sale for the account of the Company or for the account of any holder of
securities of the Company.
10. RELEASE.
(A) Each of the parties hereto and its respective Affiliates hereby fully
and completely release and forever discharge, on behalf of himself or itself and
each of his or its respective affiliates, officers, directors, partners,
shareholders, agents, employees, attorneys, custodians, administrators,
conservators, predecessors, successors, assigns, heirs, legatees, executors,
representatives, agents, guardians and associates or any other representative of
the foregoing (collectively, "Affiliates") and any other person or entity,
respectively, who may in any fashion or manner claim any interest in the subject
matter hereof by, through or on behalf of such parties, each of the other
parties to this Agreement and their respective Affiliates (collectively, the
"Releasees") from any and all claims, demands, controversies, liabilities,
damages, judgments, debts, obligations, costs, expenses, losses, compensation,
attorneys' fees, accountant's fees, expert witness' fees or causes of action of
any kind or nature, whether now known or unknown, suspected or unsuspected, in
law or in equity, that arose from the beginning of time through and including
the date hereof (collectively, the "Claims"), other than any Claims relating to
the performance of, and obligations set forth in, any of the following:
(I) this Agreement;
(II) the Shareholders' Agreement;
4.
<PAGE>
(III) the Amended and Restated Employment Agreement;
(IV) the Administrative Services Agreement;
(V) the Designation of Purchaser, dated November 14, 1997;
(VI) the Indemnification Agreement, dated November 21, 1997, by and
between Dayton Way Pictures V, Inc. and Nicholas Matzorkis;
(VII) the Letter Agreement, dated October 24, 1997, by and between
The Kushner-Locke Company and Nicholas Matzorkis;
(VIII) any inter-company loans or advances between Kushner-Locke and
the Company;
(IX) any outstanding loans to or from the current shareholders of
the Company that are currently reflected in the financial statements of the
Company; and
(X) the Warrant (as defined in Section 11 below).
(B) Each party hereto hereby waives any and all rights which it may have
with respect to this Agreement or the subject matter hereof, under the
provisions of Section 1542 of the Civil Code of the State of California as now
worded and as hereafter amended, which section provides in pertinent part:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
It is understood and agreed that the facts in respect to which this
Agreement is executed may turn out to be other than or different from the facts
in that respect now known or believed by each of the parties to be true; and
with such understanding and agreement, each of the parties hereto expressly
accepts and assumes the risk of facts being other than or different from the
assumptions and perceptions as of any date prior to and including the date
hereof, and agrees that this Agreement shall not be subject to termination or
rescission by reasons of any such difference of facts.
(C) Each of the parties hereto represents as to itself that:
(I) it has received independent legal advice with respect to the
advisability of entering into this Agreement and no party is entitled to rely
upon or has in fact relied upon the legal or other advice of any other party or
any other party's counsel in entering into this Agreement;
5.
<PAGE>
(II) it has carefully read this Agreement, that this Agreement has
been fully explained to it by its attorney, that it fully understands all of the
terms and provisions and the binding effect of this Agreement, and that it is
entering into this Agreement voluntarily;
(III) it had the opportunity to conduct an adequate investigation into
the matters with respect to which this Agreement is executed and has reviewed
all of the documentation that it needed to review in connection with entering
into this Agreement, notwithstanding any documentation or facts that may later
come to light with respect thereto; and
(IV) it has not heretofore assigned or transferred, or purported to
assign or transfer, and it agrees that it will not hereafter assign or transfer
or purport to assign or transfer, to any person or entity, any Claim released
under this Agreement, or any portion thereof or interest therein. Each party
hereto agrees to indemnify, defend and hold harmless each Releasee from and
against any claims, demands, liabilities, damages, judgments, debts,
obligations, costs, losses and expenses (including, without limitation,
attorneys' fees), incurred by such Releasee as a result of any person or entity
asserting any such assignment or transfer of any rights or Claims under such
assignment or transfer.
11. WARRANTS. The Company simultaneously herewith has delivered to Kushner-
Locke a warrant, substantially in the form attached hereto as Exhibit E (the
"Warrant"), in consideration of, its prior advances, making available its
personnel to the Company, entering into certain guarantees on behalf of the
Company and entering into of this Agreement and the agreements contemplated
hereby. Nothing herein or in any agreement contemplated hereby shall limit the
Company's obligations to repay to Kushner-Locke such advances or to fulfill any
and all of its obligations to Kushner-Locke.
12. SUCCESSORS AND ASSIGNS, NO THIRD PARTY BENEFICIARIES. The rights and
obligations of any party to this Agreement shall not be assignable without the
prior written consent of the other parties hereto. This Agreement shall be
binding upon and inure to the benefit of the successors and permitted assigns of
the parties. Nothing contained in this Agreement is intended to confer upon any
person or entity, other than the parties and their respective permitted
successors, permitted assigns and nominees and other than the Releasees of the
parties hereto pursuant to Section 10 hereof, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
13. MISCELLANEOUS PROVISIONS.
(A) GOVERNING LAW AND FORUM. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the State of
California without regard to the conflict of laws principles of such state. The
parties hereto agree that all actions or proceedings arising in connection with
this Agreement shall be tried and litigated exclusively in the state and federal
courts located in the County of Los Angeles, State of California. The
aforementioned choice of venue is intended by the parties hereto to be mandatory
and not permissive in nature, thereby precluding the possibility of litigation
between the parties hereto with respect to or arising out of this Agreement in
any jurisdiction other than that specified in this paragraph. Each of the
parties hereto hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any
6.
<PAGE>
proceeding brought in accordance with this paragraph, and stipulates that the
state and federal courts located in the County of Los Angeles, State of
California shall have in personam jurisdiction and venue over each of them for
the purpose of litigating any dispute, controversy or proceeding arising out of
or related to this Agreement. Each of the parties hereto authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this paragraph according to the procedure for the giving of
notices as set forth in this Agreement. Any final judgment rendered against
either of the parties hereto in any action or proceeding shall be conclusive as
to the subject of such final judgment and may be enforced in other jurisdictions
in any manner provided by law.
(B) NOTICES. All notices, requests and other communications under this
Agreement shall be in writing and shall be deemed to have been delivered on the
third Business Day after having been mailed in a general or branch post office
and enclosed in a registered or certified postage prepaid envelope; the first
Business Day after having been sent by recognized overnight courier; or when
personally delivered; and, in each case, addressed to the respective parties at
the addresses stated below or to such other changed addresses that the parties
may have fixed by notice in accordance herewith. The term "Business Day" shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the City of New York, New York or Los Angeles, California are
authorized or required by law, regulation or executive order to remain closed.
If to Kushner-Locke: The Kushner-Locke Company
11601 Wilshire Boulevard, 21st Floor
Los Angeles, California 90025
Attention: Bruce Lilliston, Esq.
Telephone: (310) 481-2000
Facsimile: (310) 481-2101
with a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Attention: Barry L. Dastin, Esq.
Telephone: (310) 788-1000
Facsimile: (310) 788-1200
If to Nicholas Matzorkis: 800-U.S. Search
9701 Wilshire Boulevard, Suite 700
Beverly Hills, California 90212
Attention: Nicholas Matzorkis
Telephone: (310) 553-7000
Facsimile: (310) 786-8349
7.
<PAGE>
with a copy to: Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, California 90067-3010
Attention: Nicholas Rockefeller, Esq.
Telephone: (310) 728-3251
Facsimile: (310) 728-2251
If to the Company: 800-U.S. Search
9701 Wilshire Boulevard, Suite 700
Beverly Hills, California 90212
Attention: Nicholas Matzorkis
Telephone: (310) 553-7000
Facsimile: (310) 786-8349
; provided, however, that any notice to the Company shall also be sent to the
other parties hereto in the manner provided in this Section 13(b).
(C) SECTION HEADINGS. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(D) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(E) AMENDMENT, WAIVER. Neither this Agreement nor any term or provision
hereof may be amended, waived, discharged or modified other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or modification is sought. Any amendment shall be effective
and binding on all of the parties hereto. Any waiver of the application of any
term or provision herein or breach hereof shall not be deemed to be a waiver of
any other term, provision or breach and shall not be deemed a waiver of any
subsequent application of such term or provision or the occurrence of a
subsequent breach.
(F) SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and
agrees that (i) monetary damages would be an inadequate remedy for a breach of
any of the provisions of this Agreement, (ii) each party shall therefore be
entitled to specific performance of its rights under this Agreement without
obligation to post bond or other security in seeking such relief and (iii) in
the event of any action for specific performance of any right under this
Agreement by any party hereto against any other party hereto (such latter party,
the "Defending Party"), the Defending Party shall waive the defense that a
remedy at law would be adequate.
(G) ATTORNEY'S FEES. In any action or proceeding brought by any party
hereto to enforce any provision of this Agreement against any other party
hereto, or where any provision hereof is validly asserted as a defense, the
successful party (as determined by the Deciding Authority (as defined below)
based upon all of the facts and circumstances) shall be entitled to recover
reasonable attorney's fees and expenses, in addition to its costs and expenses
and any other available remedy, associated with such action or proceeding as may
be fixed by any court
8.
<PAGE>
of competent jurisdiction, or other jurisdiction or quasi-judicial body
(including, without limitation, an arbitrator or arbitrators) having
jurisdiction thereof ("Deciding Authority") whether or not such action or
proceeding results in a final judgment or award.
(H) SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
14. INTERPRETATION. The parties hereto agree that each party has participated
in the drafting and preparation of this Agreement, and, accordingly, in any
construction of interpretation of this Agreement, the same shall not be
construed against any party by reason of the source of drafting.
9.
<PAGE>
IN WITNESS THEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE KUSHNER-LOCKE COMPANY
By: /s/ Bruce Lilliston
--------------------------------
Bruce Lilliston
Title: President
/s/ Nicholas Matzorkis
-----------------------------------
Nicholas Matzorkis
800-U.S. SEARCH
By: /s/ Peter Locke
--------------------------------
Peter Locke
Title: President
10.
<PAGE>
EXHIBIT A
SHAREHOLDERS' AGREEMENT
1.
<PAGE>
EXHIBIT B
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
1.
<PAGE>
EXHIBIT C
ADMINISTRATIVE SERVICES AGREEMENT
1.
<PAGE>
EXHIBIT D
PROMISSORY NOTE
1.
<PAGE>
EXHIBIT E
WARRANT
1.
<PAGE>
EXHIBIT 10.14
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT ("Agreement") is made and entered into as of
September 14, 1998, by and between THE KUSHNER-LOCKE COMPANY, a California
corporation ("Kushner-Locke") and NICHOLAS MATZORKIS ("Matzorkis").
WHEREAS, Kushner-Locke is the beneficial and record owner of 8,000 shares
of the common stock, no par value (the "Common Stock") of 800-U.S. Search, a
California corporation (the "Company") representing 80% of the currently
outstanding shares of Common Stock;
WHEREAS, Matzorkis is the beneficial and record owner of 2,000 shares of
Common Stock representing 20% of the currently outstanding shares of Common
Stock (together with any After Acquired Shares (as defined below), the
"Matzorkis Shares");
WHEREAS, pursuant to that certain term sheet, dated as of September 14,
1998, by and among Kushner-Locke, Matzorkis and the Company (the "Term Sheet"),
Matzorkis and Kushner-Locke agreed to enter into this Agreement; and
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of implementing the Term Sheet and elaborating on the matters contained
therein;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and for good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereby agree as follows:
SECTION 1. CREATION OF TRUST AND TRANSFER OF COMMON STOCK.
Matzorkis agrees that as soon as reasonably practicable, but in no
event later than March 9, 1999, he shall cause all of the Matzorkis Shares to be
transferred to an irrevocable trust (the "Trust"), the beneficiary or
beneficiaries of which shall be limited to members of Matzorkis' family (other
than Matzorkis) and/or Susan Hanle. Such Trust, a true and complete copy of
which shall be provided to the Company, shall be administered and controlled
solely by an independent trustee which is not Matzorkis, a relative or family
member of either Matzorkis or his spouse or an entity which controls, is
controlled by or is under common control with any of the foregoing (the
"Trustee"). The initial Trustee shall be initially designated by Matzorkis.
Promptly upon the creation of such Trust and as a condition to the transfer of
all of the Matzorkis Shares into such Trust, the Trustee shall execute this
Agreement and be bound hereby as if an original party hereto. Upon execution of
this Agreement by such Trustee, all of Matzorkis' rights herein shall be
terminated and forever transferred to the Trust. Any proposed transfer, sale or
other disposition after the date hereof of any or all of the Matzorkis Shares
other than to the Trust pursuant to the terms hereof shall be null and void and
of no effect.
SECTION 2. DESIGNATION OF DIRECTORS.
(A) For so long as the Trust owns at least 10% of the outstanding
shares of Common Stock (the "Trust Minimum"), but subject to Section 6 hereof,
the Trust shall have the right to designate, in the aggregate, one (1) director
(who will not be Matzorkis) to the Board of
1.
<PAGE>
Directors of the Company (the "Board"). Each of Matzorkis and the Trust agrees
that he or it will not designate or otherwise nominate, or cause or seek to be
nominated, directly or indirectly, any other designees or nominees to the Board
except as provided in Section 2(b). Matzorkis agrees to resign from the Board
effective immediately upon execution hereof.
(B) Subject to Section 6 hereof, Kushner-Locke shall have the right
to designate three (3) director nominees to the Board.
SECTION 3. VOTING AGREEMENT.
(A) Matzorkis and the Trust shall, and Matzorkis shall cause his
Affiliates (as defined below) to vote all securities of the Company held, owned
or controlled, in each case directly or indirectly, by any and each of them
which are entitled to vote at a meeting of the shareholders of the Company (or
by written consent) with respect to the nomination and election of members of
the Board for the nomination and election of all director designees of Kushner-
Locke nominated pursuant to Section 2(b) at any time and from time to time.
(B) For so long as the Trust owns the Trust Minimum, Kushner-Locke
shall, and shall cause its Affiliates to vote all securities of the Company
held, owned or controlled, in each case either directly or indirectly, by any
and each of them which are entitled to vote at a meeting of the shareholders of
the Company with respect to the nomination and election of the members of the
Board, for the nomination and election of the director designee of the Trust
nominated pursuant to Section 2(a) at any time and from time to time; provided,
however, that Kushner-Locke's (and its Affiliates') obligation under this
Section 3(b) shall be subject to the absence of any legal issues (e.g., any
consumer reporting statutes or other laws or regulations) which could adversely
affect the Company's financial position, results of operations, ability to raise
capital, business, operations or prospects as a result of such election.
(C) The parties hereto agree that Kushner-Locke shall not vote in
favor of any sale of substantially all of the assets of the Company to Kushner-
Locke, or any of Kushner-Locke's Affiliates or to, Donald Kushner or Peter
Locke, unless either (i) the Company has obtained a fairness opinion from a
qualified valuation consultant, investment bank or certified public accounting
firm as to the consideration to be received by the Company, or (ii) the
transaction is approved by a majority of the shareholders of the Company
(excluding Kushner-Locke).
SECTION 4. TAG-ALONG RIGHTS.
(A) For so long as the Trust owns the Trust Minimum, if Kushner-Locke
and/or any of its Affiliates (individually or collectively, the "KL Selling
Group" or a "Selling Group," as applicable) or if the Trust and/or any of its
Affiliates (individually or collectively, the "NM Selling Group" or a "Selling
Group," as applicable) at any time or from time to time, in one or in a series
of transactions, enters into an agreement to sell in a private transaction a
number of shares of Common Stock which constitutes control of the Company
(excluding transfers or sales to members of that Selling Group or dividends or
distributions by Kushner-Locke to its shareholders) (a "Tag-Along Sale"), then
(i) in the case of a Tag-Along Sale by the KL Selling Group, the Trust and/or
its Affiliates, and (ii) in the case of a Tag-Along Sale by the NM Selling
2.
<PAGE>
Group, Kushner-Locke and/or its Affiliates, shall have the right, but not the
obligation, to participate in such Tag-Along Sale by selling the number of
shares of Common Stock then owned by such parties as set forth in the second
succeeding sentence. A party having a right to participate in a Tag-Along Sale
pursuant to the preceding sentence is referred to herein as a "Tag-Along Party."
The number of shares of Common Stock that the members of a Tag-Along Party
collectively shall be entitled to include in such Tag-Along Sale shall be equal
to the number of shares of Common Stock beneficially owned by such Tag-Along
Party multiplied by a fraction, the numerator of which is equal to the total
number of shares of Common Stock the purchaser ("Purchaser") proposes to
purchase from the Selling Group which is not the Tag-Along Party, and the
denominator of which is the total number of shares beneficially owned by the
Selling Group which is not a Tag-Along Party; provided however, that if the
Purchaser will not increase the number of shares of Common Stock it will
purchase in such Tag-Along Sale without negatively changing any term of the Tag-
Along Sale, in lieu of the tag along rights set forth above, a Tag-Along Party
will have the right to include in such Tag-Along Sale, replacing an equal number
of shares of the Common Stock proposed to be included in such Tag-Along Sale by
the Selling Group, that number of shares of Common Stock equal to the same pro
rata portion of the shares of Common Stock that the Tag-Along Party beneficially
owns as that portion the Selling Group would include in such Tag-Along Sale
(after taking into account the full inclusion of all other shares of Common
Stock to be included in such Tag-Along Sale under any tag along rights).
Any such sale or disposition by a Tag-Along Party shall be on the same
terms and conditions, including without limitation as to the form of
consideration, as the proposed Tag-Along Sale. The Tag-Along Party shall be
required to make customary and usual representations and warranties in
connection with the Tag-Along Sale, substantially similar to those made by the
non-Tag-Along Party, including, without limitation, as to the such Tag-Along
Party's ownership and authority to sell, free of all liens, claims and
encumbrances of any kind, the shares of Common Stock proposed to be transferred
or sold by such Tag-Along Party and, if such Tag-Along Party participates in the
Tag-Along Sale, it shall, without limitation as to time, indemnify and hold
harmless to the full extent permitted by law, the other members of the Selling
Group and the Purchaser against all obligations, costs, damages, expenses,
losses, judgments, assessments or other liabilities including, without
limitation, any special, indirect, consequential or punitive damages, any court
costs, costs of preparation, attorney's fees or expenses, or any accountant's or
expert witness' fees arising out of, in connection with or related to any breach
or alleged breach of any representation or warranty made by, or agreements,
understandings or covenants of, such Tag-Along Party or its affiliates under the
terms of the agreements relating to such Tag-Along Sale.
(B) Without limiting the other exceptions of Section 4(a), the
provisions of Section 4(a) shall not apply to (i) any transfer, sale or
disposition of shares of Common Stock between Kushner-Locke and any of its
Affiliates; (ii) any transfer, sale or other disposition (including, without
limitation, through one or more dividends or distributions) of shares of Common
Stock by Kushner-Locke to a management employee of the Company or Kushner-Locke
or as a spinoff to Kushner-Locke's shareholders; (iii) any sale (a "Public
Sale") of shares of Common Stock to the public pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
or to the shares so sold in a Public Sale or to the purchasers of such shares in
a Public Sale.
3.
<PAGE>
(C) In the event of a Tag-Along Sale, (x) if the Selling Group is the
KL Selling Group, Kushner-Locke, and (y) if the Selling Group is the NM Selling
Group, the Trustee, shall promptly provide the potential Tag-Along Party with
written notice (the "Sale Notice") not more than sixty (60) nor less than ten
(10) days prior to the proposed date of the Tag-Along Sale (the "Sale Date").
Such notice shall set forth: (i) the name and address of each Proposed
Purchaser; (ii) the number of shares proposed to be sold by such Selling Group;
(iii) the proposed amount and form of consideration to be paid for such shares
and the terms and conditions of payment offered by each Purchaser; (iv) the
number of shares of Common Stock held of record on the date of the Sale Notice
by the KL Selling Group, the NM Selling Group and any other person or entity
entitled to similar "tag-along" rights in such Tag-Along Sale; (v) the number of
shares of Common Stock the potential Tag-Along Party is entitled to include in
the Tag-Along Sale based upon Section 4(a) above; (vi) that the Purchaser has
been informed of the "Tag-Along Rights" provided for in this Section 4 and has
agreed to purchase all applicable shares of Common Stock in accordance with the
terms hereof; and (vii) the proposed date of such Tag-Along Sale.
Each Tag-Along Party shall provide written notice (the "Tag-Along
Notice") to Kushner-Locke on behalf of the KL Selling Group, or the Trustee on
behalf of the NM Selling Group, as the case may be, within five (5) business
days of the date of the Sale Notice. The Tag-Along Notice shall set forth the
number of shares of Common Stock, if any, the Tag-Along Party elects to include
in the Tag-Along Sale. If the Tag-Along Notice is not received by the Selling
Group from the Tag-Along Party within the five (5) business day period specified
above, the Selling Group members shall have the right to sell or otherwise
transfer their respective shares of Common Stock to the Purchaser without any
participation by the Tag-Along Party, but only on terms and conditions no more
favorable, in any material economic respect, to the sellers thereof, than those
stated in the Sale Notice and only if such sale occurs not later than sixty (60)
days after the date of the Sale Notice.
(D) None of the Trust, Matzorkis or its or his Affiliates shall
pledge, hypothecate or encumber or otherwise make or allow to be created any
lien, pledge, claim or other encumbrance of any kind on any of the shares of
Common Stock now owned or hereafter acquired by any of them.
(E) "Affiliate" of a specified person or entity means any other
person or entity directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified person or entity and shall
include (x) in the case of a person who is an individual, members of such
specified person's immediate family (as defined in Instruction 2 of Item 404(a)
of Regulation S-K promulgated by the Securities and Exchange Commission) and (y)
in the case of an entity which is a Trust, the trustee and all beneficiaries of
which are such specified person or members of such person's immediate family.
For the purposes of this definition, "control" when used with respect to any
person or entity means the power to direct the management and policies of such
person or entity, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling,"
"controlled" and similar terms have meanings correlative to the foregoing.
4.
<PAGE>
SECTION 5. DRAG-ALONG RIGHTS.
(A) If Kushner-Locke agrees to transfer, sell or otherwise dispose
of, directly or indirectly, shares of Common Stock, which transfer, sale or
other disposition (together with transfers, sales or other dispositions by other
members of the KL Selling Group) would effectively transfer control of the
Company to the Purchasers thereof including but not limited to circumstances
under which such Purchasers would hold more shares of Common Stock than Kushner-
Locke (a "Drag-Along Sale"), then upon the demand of Kushner-Locke, each of the
Trust, Matzorkis and his Affiliates shall transfer, sell or otherwise dispose of
the same pro rata amount of their respective outstanding shares of Common Stock
in such Drag-Along Sale as the KL Selling Group proposes to transfer, sell or
otherwise dispose of its shares of Common Stock in such Drag-Along Sale;
provided, however, that this provision shall not apply if such sale is to
Kushner-Locke, any of its subsidiaries, Donald Kushner or Peter Locke unless
either (i) the Company has obtained a fairness opinion from a qualified
valuation consultant, investment bank or certified public accounting firm as to
the consideration to be received by the selling shareholders, or (ii) the
transaction is approved by a majority of the shareholders of the Company
(excluding Kushner-Locke).
(B) Any such sale or disposition by the Trust, Matzorkis and his
Affiliates shall be on the same terms and conditions, including without
limitation as to the form of consideration, as the proposed Drag-Along Sale by
the KL Selling Group. The Trust, Matzorkis and his Affiliates shall be required
to make customary and usual representations and warranties in connection with
the Drag-Along Sale, including, without limitation, as to their ownership and
authority to sell, free of all liens, claims and encumbrances of any kind, the
shares of Common Stock proposed to be transferred or sold by such persons or
entities and shall, without limitation as to time, indemnify and hold harmless
to the full extent permitted by law, Kushner-Locke and the other members of the
KL Selling Group and the Purchasers against all obligations, cost, damages,
expenses, losses, judgments, assessments, or other liabilities including,
without limitation, any special, indirect, consequential or punitive damages,
any court costs, costs of preparation, attorney's fees or expenses, or any
accountant's or expert witness' fees arising out of, in connection with or
related to any breach or alleged breach of any representation or warranty made
by, or agreements, understandings or covenants of, the Trust, Matzorkis or his
Affiliates under the terms of the agreements relating to such Drag-Along Sale.
(C) Prior to making any Drag-Along Sale in which Kushner-Locke wishes
to exercise its rights under Section 5(a), Kushner-Locke shall provide the Trust
and Matzorkis with written notice (the "Drag-Along Notice") not less than ten
(10) days prior to the proposed date of the Drag-Along Sale (the "Drag-Along
Sale Date"). The Drag-Along Notice shall set forth: (i) the name and address of
the Purchasers; (ii) the proposed amount and form of consideration to be paid
per share of Common Stock, and the terms and conditions of payment offered by
each of the Purchasers; (iii) the date of the Drag-Along Sale Notice (the "Drag-
Along Notice Date"); (iv) the number of shares of Common Stock held of record by
the KL Selling Group on the date of the Drag-Along Notice; (v) the number of
shares of Common Stock to be transferred, sold or otherwise disposed of by the
KL Selling Group; (vi) the number of shares Common Stock of the Trust, Matzorkis
and his Affiliates to be included in the Drag-Along Sale; and (vii) the Drag-
Along Sale Date.
5.
<PAGE>
(D) On the Drag-Along Sale Date, the Trust, Matzorkis and his
Affiliates shall each deliver or cause to be delivered a certificate or
certificates evidencing its shares of Common Stock to be included in the Drag-
Along Sale, duly endorsed for transfer with signatures guaranteed, to such
Purchasers in the manner and at the address indicated in the Drag-Along Sale
Notice.
(E) If the Trust, Matzorkis and/or his Affiliates receive the
purchase price for their shares or such purchase price is made available to them
as part of a Drag-Along Sale and, in either case they fail to deliver
certificates evidencing their shares of Common Stock as described in this
Section 5, they shall for all purposes be deemed no longer to be a shareholder
of the Company (with the record books of the Company updated to reflect such
status), shall have no voting rights, shall not be entitled to any dividends or
other distributions with respect to the Company's Common Stock held by them,
shall have no other rights or privileges as a shareholder of the Company and, in
the event of liquidation of the Company, their rights with respect to any
consideration they would have received if they had complied with this Section 5,
if any, shall be subordinate to the rights of any equity holder. In addition,
upon demand by Kushner-Locke, and in addition to any other rights or remedies of
Kushner-Locke granted herein or otherwise, the Company shall stop any subsequent
transfer of any such shares of Common Stock held by the Trust, Matzorkis or his
Affiliates.
SECTION 6. TERMINATION.
The provisions of Section 2 through and including 5 hereof shall
terminate upon the earlier of (i) the effective date of the initial public
offering of shares of the Company's common stock pursuant to the Act, or (ii)
upon the date that the Trust, Matzorkis and/or his Affiliates hold less than ten
percent (10%) of the issued and outstanding shares of the Company's Common
Stock. The provisions of Section 1 hereof shall terminate upon the fifth
anniversary of the IPO date.
SECTION 7. MISCELLANEOUS.
(A) AFTER-ACQUIRED SHARES. All of the provisions of this Agreement
shall apply to, and the terms "Common Stock" or "Matzorkis Shares" shall mean
and include as to each applicable person or entity, (i) all of the Common Stock
now owned or controlled by, such person or entity or its respective Affiliates,
(ii) all shares of Common Stock hereafter transferred to or controlled by such
person or entity or its respective Affiliates, (iii) all securities of the
Company received by such person or entity or its respective Affiliates as a
dividend on, or in connection with, a split of Common Stock or as a result of
any exchange or reclassification of Common Stock or any form of corporate
reorganization, recapitalization, consolidation, or merger, (iv) any securities
convertible into, or exchangeable for, Common Stock or other security referred
to in this definition, and (v) any option, warrant or right to acquire Common
Stock or any other security referred to in this definition.
(B) LEGEND. A copy of this Agreement shall be filed with the
Secretary of the Company and shall be kept at its principal executive office.
Upon the execution of this Agreement, each party hereto shall cause each
certificate representing shares of Common Stock
6.
<PAGE>
now or hereafter owned by it or him or its or his Affiliates to carry a legend,
in addition to any other applicable legends, as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE PROVISIONS OF A SHAREHOLDERS' AGREEMENT, DATED AS OF
SEPTEMBER 14,1998, AND MAY NOT BE PLEDGED, HYPOTHECATED OR
ENCUMBERED, OR TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF,
EXCEPT AS THEREIN PROVIDED. A COPY OF SUCH AGREEMENT IS ON
FILE AT THE OFFICES OF THE COMPANY."
(C) NOTICES. All notices, requests and other communications under
this Agreement shall be in writing and shall be deemed to have been delivered on
the third Business Day after having been mailed in a general or branch post
office and enclosed in a registered or certified postage prepaid envelope; the
first Business Day after having been sent by recognized overnight courier; or
when personally delivered; and, in each case, addressed to the respective
parties at the addresses stated below or to such other changed addresses that
the parties may have fixed by notice in accordance herewith. The term "Business
Day" shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the City of New York, New York or Los Angeles,
California are authorized or required by law, regulation or executive order to
remain closed.
(I) if to the Trust, Matzorkis or its or his Affiliates:
800-U.S. Search
9701 Wilshire Boulevard, Suite 700
Beverly Hills, California 90212
Attn: Nicholas Matzorkis
Facsimile: (310) 786-8349
with a copy to:
Troop, Steuber, Pasich, Reddick & Tobey, LLP
2029 Century Park East, Suite 2400
Los Angeles, California 90067
Attn: Nicholas Rockefeller, Esq.
Facsimile: (310) 728-2251
(II) if to Kushner-Locke or its Affiliates:
The Kushner-Locke Company
11601 Wilshire Boulevard, 21st Floor
Los Angeles, California 90025
Attn: Peter Locke
Facsimile: (310) 481-2094
7.
<PAGE>
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, Suite 1600
Los Angeles, California 90067
Attn: Barry L. Dastin, Esq.
Facsimile: (310) 788-1200
(D) GOVERNING LAW AND FORUM. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the State of
California without regard to the conflict of laws principles of such state. The
parties hereto agree that all actions or proceedings arising in connection with
this Agreement shall be tried and litigated exclusively in the state and federal
courts located in the County of Los Angeles, State of California. The
aforementioned choice of venue is intended by the parties hereto to be mandatory
and not permissive in nature, thereby precluding the possibility of litigation
between the parties hereto with respect to or arising out of this Agreement in
any jurisdiction other than that specified in this paragraph. Each of the
parties hereto hereby waives any right it may have to assert the doctrine of
forum non conveniens or similar doctrine or to object to venue with respect to
any proceeding brought in accordance with this paragraph, and stipulates that
the state and federal courts located in the County of Los Angeles, State of
California shall have in personam jurisdiction and venue over each of them for
the purpose of litigating any dispute, controversy or proceeding arising out of
or related to this Agreement. Each of the parties hereto authorizes and accepts
service of process sufficient for personal jurisdiction in any action against it
as contemplated by this paragraph according to the procedure for the giving of
notices as set forth in this Agreement. Any final judgment rendered against
either of the parties hereto in any action or proceeding shall be conclusive as
to the subject of such final judgment and may be enforced in other jurisdictions
in any manner provided by law.
(E) ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted transferees,
successors and assigns.
(F) AMENDMENT; WAIVER. Neither this Agreement nor any term or
provision hereof may be amended, waived, discharged or modified other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or modification is sought. Any amendment shall be
effective and binding on all of the parties hereto. Any waiver of the
application of any term or provision herein or breach hereof shall not be deemed
to be a waiver of any other term, provision or breach and shall not be deemed a
waiver of any subsequent application of such term or provision or the occurrence
of a subsequent breach.
(G) SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and
agrees that (i) monetary damages would be an inadequate remedy for a breach of
any of the provisions of this Agreement, (ii) each party shall therefore be
entitled to specific performance of its rights under this Agreement without
obligation to post bond or other security in seeking such relief and (iii) in
the event of any action for specific performance of any right under this
Agreement by any party hereto against the other party hereto (such latter party,
the "Defending Party"), the Defending Party shall waive the defense that a
remedy at law would be adequate.
8.
<PAGE>
(H) THIS AGREEMENT CONTROLS. Each of the parties hereto agrees that
to the extent, if any, that any provision of this Agreement conflicts with any
other agreement covering the Company's securities to which such party may be a
party, the provisions of this Agreement shall control. This Agreement supersedes
the Term Sheet, dated as of September 14, 1998.
(I) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements representations,
warranties, statements, promises, information, arrangements and understandings,
whether oral or written, express or implied, with respect to the subject matter
of this Agreement.
(J) ATTORNEY'S FEES. In any action or proceeding brought by any party
hereto to enforce any provision of this Agreement, or where any provision hereof
is validly asserted as a defense, the successful party (as determined by the
Deciding Authority (as defined below) based upon all of the facts and
circumstances) shall be entitled to recover reasonable attorney's fees and
expenses, in addition to its costs and expenses and any other available remedy,
associated with such action or proceeding as may be fixed by any court of
competent jurisdiction, or other jurisdiction or quasi-judicial body (including,
without limitation, an arbitrator or arbitrators) having jurisdiction thereof
("Deciding Authority") whether or not such action or proceeding results in a
final judgment or award.
(K) TRANSFEREES, ASSIGNEES AND PURCHASERS BOUND. Except as otherwise
provided herein, no transfer of shares of capital stock of the Company by
Kushner-Locke or Matzorkis or the Trust to any of its or his respective
Affiliates or to any permitted transferee, successor, permitted assignee or
Purchaser shall be effective unless and until such Affiliate or permitted
transferee, successor, permitted assignee or Purchaser expressly agrees in
writing to be bound by the terms and conditions of this Agreement as if such
Affiliate or permitted transferee, successor, permitted assignee or Purchaser
were an original party hereto. In addition, if applicable, such Affiliate or
permitted transferee, assignee or Purchaser must obtain the consent of his or
her spouse, in the form attached hereto as Exhibit A, in which such spouse
agrees that any interest of that spouse in such transferred shares of capital
stock of the Company will be subject to the terms and conditions of this
Agreement.
(L) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(M) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.
<PAGE>
(N) INTERPRETATION. The parties hereto agree that each party has
participated in the drafting and preparation of this Agreement, and,
accordingly, in any construction or interpretation of this Agreement, the same
shall not be construed against any party by reason of the source of drafting.
(O) SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE KUSHNER-LOCKE COMPANY,
a California corporation
By: /s/ Peter Locke
------------------------------
Name: Peter Locke
----------------------------
Title: Co- Chairman
---------------------------
/s/ Nicholas Matzorkis
---------------------------------
Nicholas Matzorkis
11.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 99
<SECURITIES> 0
<RECEIVABLES> 147
<ALLOWANCES> 64
<INVENTORY> 0
<CURRENT-ASSETS> 188
<PP&E> 674
<DEPRECIATION> 303
<TOTAL-ASSETS> 575
<CURRENT-LIABILITIES> 7,949
<BONDS> 0
0
0
<COMMON> 1,205
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 575
<SALES> 9,245
<TOTAL-REVENUES> 9,245
<CGS> 0
<TOTAL-COSTS> 3,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 364
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> (6,787)
<INCOME-TAX> 1
<INCOME-CONTINUING> (6,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,788)
<EPS-PRIMARY> (646.48)
<EPS-DILUTED> (646.48)
</TABLE>
